One future path in development economics

by on May 13, 2012 at 3:29 am in Economics | Permalink

Johannes Haushofer writes to me:

The Busara Center for Behavioral Economics is a state-of-the-art facility for experimental studies in behavioral economics and other social sciences, located in Nairobi, Kenya, and hosted by Innovations for Poverty Action, Kenya (IPA-K). Busara is open to be used by researchers and students from universities and institutions around the world. The core of Busara is a pool of participants from the Nairobi slums, combined with a cluster of 20 networked computers with which researchers can investigate economic behavior and preferences (e.g. trust/ultimatum/dictator/public goods games, time/risk preferences, priming studies, auction and market experiments, etc.). A central feature of the computer setup is that all computers have touchscreen monitors; together with specially developed paradigms, this allows for the participation of not only computer-illiterate, but entirely illiterate populations. The lab also includes a 20-person waiting room, 4 individual survey cubicles for private interviews, laboratory space for saliva and blood sampling (a phlebotomist is available), and desk space for visiting researchers and students. The subject pool will reach 1000 members by the end of May 2012; available demographic information for each subject pool member includes age, ethnicity, education, martial status, number of children, cell phone number, and fingerprint. Participants are invited for studies by SMS; once in the lab, their identity is verified by fingerprint, and after the experiment they are paid through the mobile money system MPesa. The weekly capacity of the lab is 200 participants, and studies are run by a team of 5 full-time staff. The standard experimental software is z-Tree, although other software packages can be installed upon request.

For more information on running studies at Busara, visit our website at www.busaracenter.org, or get in touch with Johannes Haushofer (joha@mit.edu). We also invite you to find us on www.facebook.com/busaracenter, where you will find a few pictures of the lab.

1 Rahul May 13, 2012 at 8:01 am

How many Kenyan-poverty-line incomes did this whole project cost?

2 Nylund May 13, 2012 at 8:50 am

I think this is a fantastic metric. We should measure everything with it, the price of a new Ipad, JPMorgan’s recent loss, the cost of the F-22 program, etc.

I’m not entirely joking. But, more seriously, this expense should probably be thought of as something closer to R&D in other sectors…money spent now to make future actions or interventions more efficient and/or cost effective.

3 economist1 May 14, 2012 at 12:16 am

Rahul FTW

4 Johannes Haushofer May 20, 2012 at 9:51 am

Hi Rahul,
excellent question. The yearly costs of the lab correspond to ~500 yearly incomes of $1.25/day, at PPP for Kenya. Our hope is that the lab will allow researchers to better understand the behavior and preferences of our participants, and as a consequence to design better poverty alleviation programs and RCTs. It is an open question whether this approach is more or less efficient in the long run than simply handing out 500 poverty-line incomes. To answer this question, I am also running an RCT in Kenya (with my colleagues Jeremy Shapiro, Petra Persson, and Paul Niehaus) in which we do precisely this, i.e. hand out 500 poverty-line incomes. You can read about it here: http://www.givedirectly.org/evidence.php. The welfare effect of the lab is much harder to quantify; we are currently looking into ways to measure it.
Best regards and thanks for your interest,
johannes

5 Bill May 13, 2012 at 11:15 am

Please send your money to enlist your subjects, along with your personal Visa number, to….

6 economist1 May 13, 2012 at 4:38 pm

Is development economics eventually just going to be a subset of behavioral economics/applied microeconomics? I’m not kidding- this seems to be the way the profession is evolving. We’ve gone a long way from Rosenstein-Rodan.

How much practical impact can cataloging minor behavioral anomalies go in helping developing countries? Korea (or any other country) didn’t develop because they figured out something new about loss aversion.

7 k May 13, 2012 at 10:16 pm

why would it be a bad thing for “development economics” to be a subset of applied microeconomics?

8 Rahul May 13, 2012 at 11:04 pm

Maybe the same way it’d be bad for structural-engineering to become a sub-set of applied solid-state physics?

9 economist1 May 13, 2012 at 11:41 pm

k- this would be a major limitation, as many of the growth miracles have been due to macro, and not micro, factors. Poverty alleviation is a major part of development economics, just ultimately this is a band-aid. You really want to be able to defeat poverty through higher incomes, and hopefully improve things like democratic and noncorrupt governance. Also, k, if you can answer the question I asked, then you’re question makes sense, otherwise not so much- this is why I asked it.

Firat- I think your points are valid, but do you think the response to these 4 is to ignore much more potentially useful development research and just have applied microeconomics? Is the response to 4 is to just give in and try and figure out Kenyan risk aversion parameters by playing games with the indigent?

10 Firat Uenlue May 14, 2012 at 2:26 am

I think that there should be a focus on macro but in my opinion what decides policy is to a large degree dependent upon the current discourse in the Western world. All sorts of random governments engage in green development projects, not because they thought it up but because a few key Western universities promote this line of thinking and development. My focus is on macro-issues and I would suggest most people to focus on macro, but for macro concepts to be implemented we need to sway the right people in this direction.

11 Firat Uenlue May 13, 2012 at 11:27 pm

“Korea (or any other country) didn’t develop because they figured out something new about loss aversion.”

Some quick answers during my lunch break:
1) Many of the steps East Asian nations took cannot really be replicated due to current law/international regulations. A vital aspect of Koreas development was using banks to funnel money towards productive companies that had proven themselves on the world market via exports. Using such (in)direct subsidies is much more difficult in today’s environment (WTO etc). Obviously if you are big enough you can flaunt the rules somewhat…

2) “Getting prices wrong” was another part of Koreas development strategy. Knowing just these three words, how many economists can you see advocating such a path?

3) Asians are poor at promoting their path and lack the enthusiasm of free-markeeters or free-traders hence their position is under-represented in the academic and public discourse. Japan’ finance ministry tended to avoid recruting economists for a long time, to put it very bluntly, all they cared about was putting their country on the right track, they couldn’t care less about how their model is perceived elsewhere.

4) Industrial policy is important in these countries, the political economy is the object which you need to analyze. However if you even talk about “political economy” in the US people think you are a Marxist.

12 Asif Dowla May 14, 2012 at 10:52 pm

Is anyone concerned about the issue of “informed consent.” Has the project been approved by the MIT Institutional Review Board?

13 Ricardo May 15, 2012 at 2:07 am

“Has the project been approved by the MIT Institutional Review Board?” Probably. You could always email joha@mit.edu to check if you are concerned.

14 Johannes Haushofer May 20, 2012 at 11:10 am

Hi Asif, yes of course it has been approved by MIT’s IRB. Best regards, Johannes

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