I had an excellent time in this one, here is the audio and transcript. Here is the opening summary:
Abhijit joined Tyler to discuss his unique approach to economics, including thoughts on premature deindustrialization, the intrinsic weakness of any charter city, where the best classical Indian music is being made today, why he prefers making Indian sweets to French sweets, the influence of English intellectual life in India, the history behind Bengali leftism, the best Indian regional cuisine, why experimental economics is underrated, the reforms he’d make to traditional graduate economics training, how his mother’s passion inspires his research, how many consumer loyalty programs he’s joined, and more.
Yes there was plenty of economics, but I feel like excerpting this bit:
COWEN: Why does Kolkata have the best sweet shops in India?
BANERJEE: It’s a bit circular because, of course, I tend to believe Kolkata has —
COWEN: So do I, however, and I have no loyalty per se.
BANERJEE: I think largely because Kolkata actually also — which is less known — has absolutely amazing food. In general, the food is amazing. Relative to the rest of India, Kolkata had a very large middle class with a fair amount of surplus and who were willing to spend money on. I think there were caste and other reasons why restaurants didn’t flourish. It’s not an accident that a lot of Indian restaurants were born out of truck stops. These are called dhabas.
BANERJEE: Caste has a lot to do with it. But sweets are just too difficult to make at home, even though lots of people used to make some of them. And I think there was some line that was just permitted that you can have sweets made out of — in these specific places, made by these castes.
There’s all kinds of conversations about this in the early-to-mid 19th century on what you can eat out, what is eating out, what can you buy in a shop, et cetera. I think in the late 19th century you see that, basically, sweet shops actually provide not just sweets, but for travelers, you can actually eat a lunch there for 50 cents, even now, an excellent lunch. They’re some savories and a sweet — maybe for 40 rupees, you get all of that.
And it was actually the core mechanism for reconciling Brahminical cultures of different kinds with a certain amount of social mobility. People came from outside. They were working in Kolkata. Kolkata was a big city in India. All the immigrants came. What would they eat? I think a lot of these sweet shops were a place where you actually don’t just get sweets — you get savories as well. And savories are excellent.
In Kolkata, if you go out for the day, the safest place to eat is in a sweet shop. It’s always freshly made savories available. You eat the freshly made savories, and you get some sweets at the end.
COWEN: Are higher wage rates bad for the highest-quality sweets? Because rich countries don’t seem to have them.
BANERJEE: Oh no, rich countries have fabulous sweets. I mean, at France —
COWEN: Not like in Kolkata.
BANERJEE: France has fabulous sweets. I think the US is exceptional in the quality of the . . . let me say, the fact that you don’t get actually excellent sweets in most places —
And this on music:
BANERJEE: Well, I think Bengal was never the place for vocal. As a real, I would say a real addict of vocal Indian classical music, I would say Bengal is not, never the center of . . . If you look at the list of the top performers in vocal Indian classical music, no one really is a Bengali.
In instrumental, Bengal was always very strong. Right now, one of the best vocalists in India is a man who lives in Kolkata. His name is Rashid Khan. He’s absolutely fabulous in my view, maybe the best. On a good day, he’s the best that there is. He’s not a Bengali. He’s from Bihar, I think, and he comes and settles in Kolkata. I think a Hindi speaker by birth, other than a Bengali. So I don’t think Bengal ever had top vocalists.
It had top instrumentalists, and Ravi Shankar, Ali Akbar Khan, Nikhil Banerjee — these were all Bengali instrumentalists. Even now, I would say the best instrumentalists, a lot of them are either Bengali or a few of them are second . . . Vilayat Khan and Imrat Khan were the two great non-Bengali instrumentalists of that period, I would say, of the strings especially. And they both settled in Kolkata, so that their children grew up in Kolkata.
And the other great instrumentalists are these Kolkata-born. They went to the same high school as I did. There were these Kolkata-born, not of Bengali families, but from very much the same culture. So I think Kolkata still is the place which produces the best instrumentalists — sitarists, sarod players, et cetera.
COWEN: Why is the better vocal music so often from the South?
Definitely recommended, Abhijit was scintillating throughout.
I will be recording a Conversation with him, no associated public event. So what should I ask him?
I thank you all in advance for the assistance.
Abhijit and I were in the same first year class at Harvard, and I have two especially strong memories of him from that time.
First, he was always willing to help out those who were not as advanced in the class work as he was. Furthermore, that was literally everyone else. He was very generous with his time.
Second, when it came to the first-year Macro final (I don’t mean the comprehensive exams), Andy Abel wrote a problem with dynamic programming, which was Andy’s main research area at the time. Abhijit showed that the supposed correct answer was in fact wrong, that the equilibrium upon testing was degenerate, and he re-solved the problem correctly, finding some multiple equilibria if I recall correctly, all more than what Abel had seen and Abel wrote the problem. Abhijit got an A+ (Abel, to his credit, was not shy about reporting this).
One of my favorite Abhijit papers is “On Frequent Flyer Programs and other Loyalty-Inducing Economic Arrangements,” with Larry Summers. I believe it was published QJE 1987, but somehow the jstor link does not show up from google searches. This was one of the first papers to show how consumer loyalty programs could segment the market and have collusive effects.
Another favorite Abjihit paper of mine is his job market paper, “The Economics of Rumours,” later published in ReStud 1993. Have you ever wondered “if this rumor is true, why haven’t I heard it before?” Abhijit works through the logic of the model on that one, in a scintillating performance. It turns out this paper is now highly relevant for analyzing information transmission through social media.
Abhijit is the clearest case I know of a brilliant theorist who decided the future was with empirical work — he was right. Nonetheless his early theory papers are still worthy of attention. When Abhijit went on the job market, his letter writers suggested he might someday win a Nobel Prize, so strong were his talents. They were right, but I suspect they had no idea for what the prize in fact would turn out to be.
The Nobel Prize goes to Abhijit Banerjee, Esther Duflo and Michael Kremer (links to home pages) for field experiments in development economics. Esther Duflo was a John Bates Clark Medal winner, a MacArthur “genius” award winner, and is now the second woman to win the economics Nobel and by far the youngest person to ever win the economics Nobel (Arrow was the previous youngest winner!). Duflo and Banerjee are married so these are also the first spouses to win the economics Nobel although not the first spouses to win Nobel prizes–there was even one member of a Nobel prize winning spouse-couple who won the Nobel prize in economics. Can you name the spouses?
Michael Kremer wrote two of my favorite papers ever. The first is Patent Buyouts which you can find in my book Entrepreneurial Economics: Bright Ideas from the Dismal Science. The idea of a patent buyout is for the government to buy a patent and rip it up, opening the idea to the public domain. How much should the government pay? To decide this they can hold an auction. Anyone can bid in the auction but the winner receives the patent only say 10% of the time–the other 90% of the time the patent is bought by the government at the market price. The value of this procedure is that 90% of the time we get all the incentive properties of the patent without any of the monopoly costs. Thus, we eliminate the innovation tradeoff. Indeed, the government can even top the market price up by say 15% in order to increase the incentive to innovate. You might think the patent buyout idea is unrealistic. But in fact, Kremer went on to pioneer an important version of the idea, the Advance Market Commitment for Vaccines which was used to guarantee a market for the pneumococcal vaccine which has now been given to some 143 million children. Bill Gates was involved with governments in supporting the project.
My second Kremer paper is Population Growth and Technological Change: One Million B.C. to 1990. An economist examining one million years of the economy! I like to say that there are two views of humanity, people are stomachs or people are brains. In the people are stomachs view, more people means more eaters, more takers, less for everyone else. In the people are brains view, more people means more brains, more ideas, more for everyone else. The people are brains view is my view and Paul Romer’s view (ideas are nonrivalrous). Kremer tests the two views. He shows that over the long run economic growth increased with population growth. People are brains.
The work for which the Nobel was given is for field experiments in development economics. Kremer began this area of research with randomized trials of educational policies in Kenya. Duflo and Banerjee then deepened and broadened the use of field experiments and in 2003 established the Poverty Action Lab which has been the nexus for field experiments in development economics carried on by hundreds of researchers around the world.
Much has been learned in field experiments about what does and also doesn’t work. In Incentives Work, Dufflo, Hanna and Ryan created a successful program to monitor and reduce teacher absenteeism in India, a problem that Michael Kremer had shown in Missing in Action was very serious with some 30% of teachers not showing up on a typical day. But when they tried to institute a similar program for nurses in Putting a Band-Aid on A Corpse the program was soon undermined by local politicians and “Eighteen months after its inception, the program had become completely ineffective.” Similarly, Banerjee, Duflo, Glennerster and Kinnan find that Microfinance is ok but no miracle (sorry fellow laureate Muhammad Yunus). A frustrating lesson has been the context dependent nature of results and the difficult of finding external validity. (Lant Pritchett in a critique of the “randomistas” argues that real development is based on macro-policy rather than micro-experiment. See also Bill Easterly on the success of the Washington Consensus.)
Duflo, Kremer and Robinson study How High Are Rates of Return to Fertilizer? Evidence from Field Experiments in Kenya. This is an especially interest piece of research because they find that rates of return are very high but that farmers don’t use much fertilizer. Why not? The reasons seem to have much more to do with behavioral biases than rationality. Some interventions help:
Our findings suggest that simple interventions that affect neither the cost of, nor the payoff to, fertilizer can substantially increase fertilizer use. In particular, offering farmers the option to buy fertilizer (at the full market price, but with free delivery) immediately after the harvest leads to an increase of at least 33 percent in the proportion of farmers using fertilizer, an effect comparable to that of a 50 percent reduction in the price of fertilizer (in contrast, there is no impact on fertilizer adoption of offering free delivery at the time fertilizer is actually needed for top dressing). This finding seems inconsistent with the idea that low adoption is due to low returns or credit constraints, and suggests there may be a role for non–fully rational behavior in explaining production decisions.
This is reminiscent of people in developed countries who don’t adjust their retirement savings rates to take advantage of employer matches. (A connection to Thaler’s work).
Duflo and Banerjee have conducted many of their field experiments in India and have looked at not just conventional questions of development economics but also at politics. In 1993, India introduced a constitutional rule that said that each state had to reserve a third of all positions as chair of village councils for women. In a series of papers, Duflo studies this natural experiment which involved randomization of villages with women chairs. In Women as Policy Makers (with Chattopadhyay) she finds that female politicians change the allocation of resources towards infrastructure of relevance to women. In Powerful Women (Beaman et al.) she finds that having once had a female village leader increases the prospects of future female leaders, i.e. exposure reduces bias.
Before Banerjee became a randomistas he was a theorist. His A Simple Model of Herd Behavior is also a favorite. The essence of the model can be explained in a simple example (from the paper). Suppose there are two restaurants A and B. The prior probability is that A is slightly more likely to be a better restaurant than B but in fact B is the better restaurant. People arrive at the restaurants in sequence and as they do they get a signal of which restaurant is better and they also see what choice the person in front of them made. Suppose the first person in line gets a signal that the better restaurant is A (contrary to fact). They choose A. The second person then gets a signal that the better restaurant is B. The second person in line also sees that the first person chose A, so they now know one signal is for A and one is for B and the prior is A so the weight of the evidence is for A—the second person also chooses restaurant A. The next person in line also gets the B signal but for the same reasons they also choose A. In fact, everyone chooses A even if 99 out of 100 signals are B. We get a herd. The sequential information structure means that the information is wasted. Thus, how information is distributed can make a huge difference to what happens. A lot of lessons here for tweeting and Facebook!
Banerjee is also the author of some original and key pieces on Indian economic history, most notably History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India (with Iyer).
Before last year’s Nobel announcement Tyler wrote:
I’ve never once gotten it right, at least not for exact timing, so my apologies to anyone I pick (sorry Bill Baumol!). Nonetheless this year I am in for Esther Duflo and Abihijit Banerjee, possibly with Michael Kremer, for randomized control trials in development economics.
As Tyler predicted he was wrong and also right. Thus, this years win is well-timed and well-deserved. Congratulations to all.
You will find it here, thanks to Yogesh for the pointer.
It is an excellent piece, excerpt:
The poor often resist the wonderful plans we think up for them because they do not share our faith that those plans work, or work as well as we claim. We shouldn’t forget, too, that other things may be more important in their lives than food. Poor people in the developing world spend large amounts on weddings, dowries, and christenings. Part of the reason is probably that they don’t want to lose face, when the social custom is to spend a lot on those occasions. In South Africa, poor families often spend so lavishly on funerals that they skimp on food for months afterward.
And don’t underestimate the power of factors like boredom. Life can be quite dull in a village…
We often see the world of the poor as a land of missed opportunities and wonder why they don’t invest in what would really make their lives better. But the poor may well be more skeptical about supposed opportunities and the possibility of any radical change in their lives. They often behave as if they think that any change that is significant enough to be worth sacrificing for will simply take too long. This could explain why they focus on the here and now, on living their lives as pleasantly as possible and celebrating when occasion demands it.
Hat tip goes to half of the people I follow on Twitter.
The abstract is this:
Randomized experiments have become a popular tool in development economics research, and have been the subject of a number of criticisms. This paper reviews the recent literature, and discusses the strengths and limitations of this approach in theory and in practice. We argue that the main virtue of randomized experiments is that, due to the close collaboration between researchers and implementers, they allow the estimation of parameters that it would not otherwise be possible to evaluate. We discuss the concerns that have been raised regarding experiments, and generally conclude that while they are real, they are often not specific to experiments. We conclude by discussing the relationship between theory and experiments.
3. On the decline of “Bridge Over Troubled Water.” (I myself prefer “Cloudy,” among many other S&G songs.)
5. “We find that firms that had more connections on the eve of the 1929 financial market crash have higher 10-year survival rates during the Great Depression. Consistent with a financing channel, we find that the results are particularly strong for small firms, private firms, cash-poor firms, and firms located in counties with high bank suspension rates during the crisis. Moreover, connections to cash-rich firms are stronger predictors of survival, overall and among financially constrained firms.” Link here.
8. Roger Congleton model of the pandemic, the link downloads it rather than opening it up.
9. Maybe shaky as evidence, but this paper argues that thinking about coronavirus makes people more right-wing.
3. Anti-price gouging laws mean masks leave America, I wonder if Alex is preparing a whole post on this link?
5. The culture that is Bengali priorities: sweet shops will stay open. And a short history of coronavirus in Japan. And Ezra Klein interviews Evan Osnos on coronavirus and U.S.-China relations.
7. Why there are lags in scaling up California testing. A very good (and depressing) piece.
10. “Our infectiousness model suggests that the total contribution to R0 from pre-symptomatics is 0.9 (0.2 – 1.1), almost enough to sustain an epidemic on its own. For SARS, the corresponding estimate was almost zero (9), immediately telling us that different containment strategies will be needed for COVID-19.” Link here.
15. Our system of scientific funding is broken for rapid science (recommended).
NBER: Ten years ago, donors committed $1.5 billion to a pilot Advance Market Commitment (AMC) to help purchase pneumococcal vaccine for low-income countries. The AMC aimed to encourage the development of such vaccines, ensure distribution to children in low-income countries, and pilot the AMC mechanism for possible future use. Three vaccines have been developed and more than 150 million children immunized, saving an estimated 700,000 lives. This paper reviews the economic logic behind AMCs, the experience with the pilot, and key issues for future AMCs.
In Delhi, street hawkers will sell food, flowers, and balloons to cars paused at an intersection and, sadly, small children will dance for alms. My favorites are the book hawkers. I suspect Banerjee and Duflo would approve of my choice of both title and seller. Good price also.
Mathis Lohaus writes to me:
Thanks for doing the Conversations. I greatly enjoyed Acemoglu, Duflo, and Banerjee in short succession after the Christmas break. Your question about “top-5 journals” and the bits about graduate training reminded of something I’ve had on my mind for a while now:
For the average PhD student, how hard is it to become a tenured economist — compared to 10, 20, 30, 40 … years ago? (And how about someone in the top 10% of talent/grit?)
Publication requirements have clearly become tougher in absolute terms. But how difficult is it to write a few “very good” papers in the first place? On twitter, people will sometimes say things like “oh, it must have been nice to get tenure back in 1997 based on 1 top article, which in turn was based on a simple regression with n = 60”. I wonder if that criticism is fair, because I imagine the learning curve for quantitative methods must have been challenging. And what about the formal models etc.? Surely those were always hard. (I vaguely remember a photo showing difficult comp exam questions…)
More broadly, early career scholars now have tons of data and inspiring research at their fingertips all the time. Also, nepotism and discrimination might be less powerful than in earlier decades…? On the other hand, you have to take into account that many more PhDs are awarded than ever before. I suspect that alone is a huge factor, but perhaps less acute if we focus only on people who “really, really want to stay in academia”.
A different way to ask the question: When would have been the best point in time to try to become an econ professor (in the USA)?
I would love to hear about your thoughts, and/or input from MR readers.
I always enjoy questions that somewhat answer themselves. I would add these points:
1. The skills of networking and finding new data sets are increasingly important, all-important you might say, at least for those in the top tier of ability/effort.
2. Fundraising matters more too, because the project might cost a lot, RCTs being the extreme case here.
3. Managing your research team matters much more, and the average size of research team for influential work is much larger. Once upon a time, three authors on a paper was considered slightly weird (the claim was one of them virtually always did nothing), now four is quite normal and the background research support is much higher as well.
Recently I was speaking to someone on the job market, wondering if he should be an academic. I said: “In the old days you spent a higher percentage of your time doing economics. Nowadays, you spend a higher percentage of your time managing a research team doing economics. You hardly do economics at all. So if you are mainly going to be a manager, why not manage for the higher rather than the lower salary?”
That was tongue in cheek of course.
On the bright side, learning today through the internet is so much easier. For instance, I find YouTube a good way to learn/refresh on new ideas in econometrics, easier than just trying to crack the final published paper.
3. Daniel Drezner on Iran. And further observations on Iran. And Thomas Friedman on the killing (NYT). How the kill decision was made. Last night I watched 3 Faces, a remarkable Iranian movie by Jafar Panahi.
4. New crypto journal About Nakamato. With most of the famous people in it, and more to come.
Here are the top MR posts for 2019, as measured by landing pages. The most popular post was Tyler’s
Alas, I don’t think that will help to create more Tylers. Coming in at number two was my post:
Other posts in the top five were 3. Pretty stunning data on dating from Tyler and my posts, 4. One of the Greatest Environmental Crimes of the 20th Century,and 5. The NYTimes is Woke.
My post on The Baumol Effect which introduced my new book Why are the Prices So Damned High (one of Mercatus’s most downloaded items ever) was number 6 and rounding out the top ten were a bunch from Tyler, including 7. Has anyone said this yet?, 8. What is wrong with social justice warriors?, 9. Reading and rabbit holes and my post Is Elon Musk Prepping for State Failure?.
Other big hits from me included
- Air Pollution Reduces IQ, a Lot (Mostly a Patrick Collison post)
- The Nobel Prize in Economic Science Goes to Banerjee, Duflo, and Kremer
- Bitcoin is Less Secure than Most People Think
- Active Learning Works But Students Don’t Like It
- Sex Differences in Personality are Large and Important
Tyler had some truly great posts in the last few days of 2019 including what I thought was the post of the year (and not just on MR!) Work on these things.
Also important were:
- “What will you do to stay weird?”
- Amazon and Taxes a Simple Primer
- Best Non-fiction books of 2019.
Happy holidays everyone!
2. Technological progress in bowling alleys, which are making a comeback (Bloomberg).