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Sunday, December 30, 2012

China's Experiments on Policy Reform

On what national governments should probably do before nationalizing its policies - How China implemented "experimental gradualism."
In 1978, the Communist Party’s 11th Congress broke with its ideology-based approach to policy making, in favor of a more pragmatic approach, which Deng Xiaoping famously dubbed the process of “feeling our way across the river.” At its core was the idea that public action should be based on evaluations of experiences with different policies: this is essentially what was described at the time as “the intellectual approach of seeking truth from facts.” In looking for facts, a high weight was put on demonstrable success in actual policy experiments on the ground. The evidence from local experiments in alternatives to collectivized farming was eventually instrumental in persuading even the old guard of the Party’s leadership that rural reforms could deliver higher food output. But the evidence had to be credible. A newly created research group did field work studying local experiments on the de-collectivization of farming using contracts with individual farmers. This helped to convince skeptical policy makers (many still imbued in Maoist ideology) of the merits of scaling up the local initiatives. The rural reforms that were then implemented nationally helped achieve probably the most dramatic reduction in the extent of poverty the world has yet seen. (Ravallion 2008, 2; references not included)...
Some of the experiments that proved extremely successful were: the household responsibility system, dual-track pricing, township- and-village enterprises, and special economic zones... What is striking is that no fewer than half of all national regulations in China in the early to mid-1980s had explicitly experimental status.
These are taken from Rodrik 2008, and the details are there. Note that this isn't necessarily about conducting rigorous randomized control trials, but simply adopting some form of experimental approach in policy making, seeing if some policy works perhaps at some localities first before implementing them nationally.

I am motivated to post this partially because I am somewhat concerned about the controversial Reproductive Health Act, which just passed with some controversy in the Philippines. It is a big win, in my opinion, given what I know about policies that affect women's health. But there does not seem to be any talk of evaluation. And it will be implemented in a large scale. Aren't we interested in whether it works not only in theory but also in practice?


Sunday, December 23, 2012

The Economic Lives of the Very Poor

I am reading this highly interesting and readable piece by Banerjee and Duflo in the Journal of Economic Perspectives. The extreme poor, it happens, do not appear as they may seem. The authors summarize data about those who live below the $1 per day poverty line from cross country surveys - how they spend their money, their living arrangements, what they do for a living, etc. 

Now here's one puzzle:
A common image of the extremely poor is that they have few real choices to make. Indeed, some people surely work as hard as they can—which may not be particularly hard, because they are underfed and weak and earn barely enough to cover their basic needs, which they always try to fulfill in the least expensive way... Yet the average person living at under $1 per day does not seem to put every available penny into buying more calories. Among our 13 countries, food typically represents from 56 to 78 percent of consumption among rural households, and 56 to 74 percent in urban areas. For the rural poor in Mexico, slightly less than half the budget (49.6 percent) is allocated to food. 
Of course, these people could be spending the rest of their money on other commodities they greatly need. Yet among the nonfood items that the poor spend significant amounts of money on, alcohol and tobacco show up prominently. The extremely poor in rural areas spent 4.1 percent of their budget on tobacco and alcohol in Papua New Guinea; 5.0 percent in Udaipur, India; 6.0 percent in Indonesia; and 8.1 percent in Mexico... 
Perhaps more surprisingly, spending on festivals is an important part of the budget for many extremely poor households. In Udaipur, over the course of the previous year, more than 99 percent of the extremely poor households spent money on a wedding, a funeral, or a religious festival.
So by choice, they appear not to spend money on what we traditionally think as "basic" needs. I wonder what this means for optimal policy using the "basic needs" approach.

Saturday, December 22, 2012

The priestly caste, Math Econ vs. the lower ranked Devlops

It's that time of the year to make fun of my chosen profession. From a published article in 1973, which is still somehow very true.
From the editor: Since many of our younger readers are, with the idealism so characteristic of contemporary youth, planning to launch themselves on a career of good deeds by going to live and work among the Econ, the editor felt that it would be desirable to invite an Econologist of some experience to write an account of this little known tribe. 
The Econ tribe occupies a vast territory in the far North... They are not without some genuine and sometimes even fierce attachment to their ancestral grounds, and their youth are brought up to feel contempt for the softer living in the warmer lands of their neighbors such as the Polscis and the Sociogs. Despite a common genetic heritage, relations with these tribes are strained -- the distrust and contempt that the average Econ feels for these neighbors being heartily reciprocated by the latter -- and social intercourse with them is inhibited by numerous taboos. 
...The Econ word for caste is "field." Caste is extremely important to the self-image and sense of identity of the Econ, and the adult male meeting a stranger will always introduce himself with the phrase "Such-and-such is my field."...The territorial connotation of "field" is somewhat entirely misleading for the castes do not live apart... In some cases, nearly every caste may be represented in a single dept. 
...The dominant feature which makes status relations among the Econ of unique interest to the serious student is the way that status is the way that status is tied to the manufacture of certain types of implements, called "modls." The status of the adult male is determined by his skill at making the "modl" of his field. The facts (a) that the Econ are highly status-motivated, (b) that status is only achieved by making "modls" and (c) that most of these "modls" seem to be of little or no practical use... 
...The priestly caste (the Math-Econ) for example, is a higher "field" than either Micro or Macro, while the Devlops just as definitely rank lower... The rise of the Math-econ seems to be associated with the previously noted trend among all the Econ towards more ornate, ceremonial modls, while the low rank of the Devlops is due to the fact that this caste, in recent times, has not strictly enforced the taboos against association with the Polscis, Sociogs, and other tribes.

Wednesday, December 19, 2012

Did Color-Coding Increase Car Consumption? Evidence from Mexico

Sounds familiar? We call it color-coding in the Philippines.
In 1989, the government of Mexico City introduced a program, Hoy No Circula, that bans most drivers from using their vehicles one week- day per week on the basis of the last digit of the vehicle’s license plate. This article measures the effect of the driving restrictions on air quality using high-frequency measures from monitoring stations. Across pol- lutants and specifications there is no evidence that the restrictions have improved air quality. Evidence from additional sources indicates that the restrictions led to an increase in the total number of vehicles in circulation as well as a change in composition toward high-emissions vehicles.
The paper is here by Lucas Davis. There doesn't seem to have been an effect on pollution or congestion. And just as I have suspected, with the implementation of color-coding in the Metro Manila, people just bought more cars. Perfect example of how people re-optimize and respond to incentives.