Poor Economics

Poor Economics. Authored by MIT economists Abhijit Banerjee and Esther Duflo, this influential work examines the daily economic lives of the global poor through the lens of randomized controlled trials. The book, which contributed to the authors receiving the Nobel Memorial Prize in Economic Sciences in 2019, argues for a granular, evidence-based approach to understanding poverty, challenging grand theories in favor of specific, tested interventions. It synthesizes over fifteen years of research conducted by the Abdul Latif Jameel Poverty Action Lab across countries like India, Kenya, and Indonesia.

Overview

The book presents a radical rethinking of development economics, positioning itself against sweeping ideologies from Jeffrey Sachs to William Easterly. Banerjee and Duflo advocate for treating poverty as a series of concrete, solvable problems rather than an overwhelming monolithic condition. Their approach is built upon countless field experiments, examining how poor individuals make decisions about healthcare, education, savings, and entrepreneurship in the face of limited information and unreliable institutions. The narrative is structured around these everyday choices, drawing on research from locations as diverse as Morocco, Udaipur, and Chicago.

Key Concepts and Methodology

Central to the book's framework is the application of randomized controlled trials, a methodology borrowed from medical research, to social policy questions. This allows the authors to isolate the causal impact of specific interventions, such as providing bed nets in malaria-prone regions or incentivizing vaccination in Rajasthan. They emphasize the "three I's": Ideology, Ignorance, and Inertia, as key barriers to effective policy. Concepts like the "poverty trap" are scrutinized through this empirical lens, with data collected in partnership with organizations like Seva Mandir and the World Bank challenging simplistic narratives.

Major Findings and Insights

The research reveals counterintuitive insights into the economic behavior of the poor. For instance, despite the high returns, investments in preventive healthcare and education are often foregone, while significant sums may be spent on televisions or weddings. The book details how small costs, unreliable quality, and present-biased thinking can explain these patterns. Findings show that providing tiny incentives, like a bag of lentils for immunization in India, dramatically increases uptake. Other studies explore the effectiveness of microfinance in Hyderabad, the impact of teacher absence in Udaipur, and savings behaviors facilitated by technologies like M-Pesa in Kenya.

Policy Implications and Debates

Banerjee and Duflo propose a "step-by-step, learning-by-doing" approach to policy, advocating for scalable, tested interventions. They argue for "nudges" and "supply-side" improvements, such as deworming pills in schools or performance pay for teachers. Their work has directly influenced programs by governments in India and Indonesia and international bodies like the World Health Organization. The book engages in debates with critics like Angus Deaton, who question the external validity of small-scale trials, and with broader arguments about the roles of free markets versus state planning in development.

Reception and Influence

Upon publication, the book received widespread acclaim, winning the Financial Times and Goldman Sachs Business Book of the Year Award. It was praised by figures like Amartya Sen and Steven Levitt for its innovative methodology and human-centric perspective. Its greatest impact has been in popularizing the use of randomized evaluations in social science, cementing the influence of the Abdul Latif Jameel Poverty Action Lab. The subsequent awarding of the Nobel Memorial Prize in Economic Sciences to Banerjee, Duflo, and Michael Kremer in 2019 was seen as a direct validation of the research paradigm the book exemplifies.

Category:2011 non-fiction books Category:Books about economics Category:Development studies books