Apr 30, 2011

Book review(s) of the day: "Measuring How and Why Aid Works—or Doesn't"

William Easterly writes a review of two recent books on the field of behavioral economics/randomized trials/field experiments. Here. My source here.
Mr. Banerjee and Ms. Duflo, along with Mr. Karlan, are luminaries in this branch of economics. (Mr. Appel seems to have helped out Mr. Karlan as a writer and field worker). "More Than Good Intentions" says that it's addressing the "new economics" of global poverty, while "Poor Economics" concerns a "radical rethinking" of the same subject, and indeed the two books are so similar that it's hard to distinguish between them. In the end I gave up and regarded them as a two-volume set—and a marvelous, rewarding one at that.
The books' signal achievement is in addressing two disgraceful problems that beset humanitarian aid. The first is that the effectiveness of aid is often not evaluated at all; the second is that even when aid is evaluated, the methods are often dubious, such as before-and-after analysis that doesn't take into account variables that have nothing to do with the aid itself. Humanitarian aid is usually flying blind. These books take the blinders off—de-worming does work, many other efforts do not.
"More Than Good Intentions" and "Poor Economics" are marked by their deep appreciation of the precariousness that colors the lives of poor people as they tiptoe along the margin of survival. But I would give an edge to Mr. Banerjee and Ms. Duflo in this area—the sheer detail and warm sympathy on display reflects a true appreciation of the challenges their subjects face. Messrs. Karlan and Appel are at their best in addressing the subtleties of behavior and testing them in the psychology laboratory and in the field. They have produced a remarkably readable and credible analysis of the intertwining of irrationality and poverty.
This TED video (Solving social problems with a nudge) shows also that behavioral economics has a lot to say about economic development.

Lant Pretchett sees field experiments from a wider perspective when he claims:
At the same time, many, if not most, of the consequential questions of development economics are simply not susceptible to this approach. No formal method—from the use of calculus to general equilibrium to simulations to controlled experiments to "field" experiments—tells us which are the important questions. The risks of letting any method, rather than the phenomena themselves, dictate research questions are obvious. I worry that the drive for "clean" identification as a methodological obsession is driving some junior researchers—unlike their more senior experimentalist peers whose early careers were based in non-experimental economics addressing the big questions—to a pursuit of the cute instrument (whether natural or experimental). This is leading them down the intellectual cul de sac of precise answers to trivial questions.
Field experiments have taken development economic to its new and very exciting historical stage. After many years of confusion this is a very fresh and valuable approach.

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