Evidence! (versus bureaucracy...). Dean Karlan is the man in the middle.
The US hired a leading economist to fix how it allocates foreign aid. Here’s his plan. Dean Karlan explains his plan to get USAID to take evidence more seriously. By Dylan Matthews
You can read the transcript as well as listen to the show at the link:
How randomized trials and the town of Busia, Kenya changed economics
Theory in practice--Nobel laureate Michael Kremer is building up development economics at UChicago. By Lucas McGranahan, The University of Chicago Magazine — Summer/22
"In 1985 a new college graduate named Michael Kremer traveled to Kenya hoping to learn more about a topic he had studied at Harvard: economic development in low-income countries. He didn’t anticipate that an official in the village where he was staying would invite him to teach at a new school—but Kremer stayed in the country for a year to do just that. In fact, he cofounded an organization, WorldTeach, to send more teachers to Kenya and ultimately to several other developing countries.
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"When he returned to Kenya in the early 1990s, Kremer was just starting his academic career as an economist at MIT. ... One friend, a Kenyan who was working for a small Dutch nongovernmental organization operating in Africa, was trying to identify schools in which to roll out a program intended to improve learning. Kremer offered a casual suggestion: select schools in a systematic way, then compare outcomes in those schools with outcomes in the same number of similar schools where the program was not operating.
"After returning home Kremer heard from his friend that the NGO was interested in trying out the approach. It was the start of a relationship that helped determine the trajectory of Kremer’s research in economics: he got involved not only with the Kenyan school study but with other experiments being done by the organization, today called ICS Africa, helping it develop evidence-backed programs.
"Kremer’s desire to help was evolving into a scientific methodology, one that would complement the most established approaches in his discipline.
“Randomized controlled trials had been used in medicine for a very long time,” he says, noting that some economists and other social scientists had also used them. And yet the technique had not broken through widely in economics, which largely either focused on theoretical models or relied on existing data.
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"Kremer was born in New York City to parents who were both children of Jewish immigrants from Europe. He came of age in the orbit of Kansas State University, where his father, Eugene Kremer, taught architecture, and his mother, Sara Lillian Kremer, was a professor of English. He credits his mother, who authored two books on literary representations of the Holocaust, with teaching him the necessity of addressing preventable suffering and injustice in the world—the key motivation behind his work, from founding WorldTeach to conducting research in Kenya and beyond.
"Kremer and his wife and collaborator Rachel Glennerster—a British development economist who joined the UChicago faculty as an associate professor in 2021—take this intention to heart in their research as well as in their personal philanthropy: they’re part of the Giving What We Can Pledge, a commitment to give 10 percent or more of their lifetime income to high-impact charities.
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"In the early 2000s, Kremer and a colleague set out to study a group of 75 schools in Kenya. They found that a school-based program providing deworming pills to all students reduced absenteeism by more than 25 percent—a staggering result improving the health and well-being of the children directly affected, and likely of the entire local population and its economy over time. In their 2004 paper, the authors argue that the positive spillover effects easily justify providing free universal treatment to school-age children in high-risk areas.
"Officials took note. After the study, with the support of NGOs, the program was scaled nationwide by the Kenyan government. From there it was picked up by multiple Indian states—and then by the Indian national government. Today the world’s second most populous country holds National Deworming Day twice a year, administered through public schools.
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"In his Nobel lecture Kremer shared his greatest hope for the work he does: “innovations in social institutions designed to accelerate scientific and technological change and orient it toward human needs.”
Here's the announcement from Chicago:
The Becker Friedman Institute’s Development Economics Center is pleased to announce the launch of the Development Innovation Lab at UChicago. The launch will take place during Innovation and Development Week, to be held April 25-29 on the University of Chicago campus.
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DIL’s team of professional researchers are actively engaged in cutting-edge research, including a new meta-analysis finding that water treatment reduces the odds of child mortality (death before age five) by about 30%. Drawing from this historic work, GiveWell recently announced its decision to recommend a grant of $64.7 million in new spending on water treatment, which could save thousands of lives.
“The University of Chicago’s commitment to development economics, through the launch of the Development Innovation Lab provides a tremendous opportunity to develop new knowledge on ways to address global poverty and ultimately to expand economic opportunity and improve lives,” said Kremer. “I look forward to helping build and grow the development economics community at UChicago and to advancing new research and experimentation to address a range of social and economic challenges.”
"Kremer was among the first economists to evaluate interventions in developing countries through randomized control trials. In 1998, he started a project on deworming in Kenya that has since improved the lives of millions of people. By randomizing treatments for intestinal worms at the school level, he and his collaborators found that their research initiative reduced student absenteeism by a quarter—and even carried positive outcomes to neighboring schools. Subsequent work also found that deworming had long-run impacts, leading to higher labor supply for men and more education for women.
"In addition to that research, Kremer helped develop the advance market commitment, proposing the idea of a contract that would guarantee a viable market for a costly product. Such commitments have stimulated private investment in vaccine research and the distribution of vaccines for diseases in the developing world."
Mechanisms designed to elicit truthful reporting in the laboratory sometimes are cumbersome to administer and difficult to explain. Here's a paper that finds that simple attempts to incentivize truthful reporting (including allowing other participants to hear each report, as well as small payments for reports that conform to community consensus) can help eliminate incentives to boost family and friends, when reports concern who could make most effective use of a cash grant.
Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in the Field By Reshmaan Hussam, Natalia Rigol, and Benjamin N. Roth American Economic Review 2022, 112(3): 861–898 https://doi.org/10.1257/aer.20200751
Abstract: "Identifying high-growth microentrepreneurs in low-income countries remains a challenge due to a scarcity of verifiable information. With a cash grant experiment in India we demonstrate that community knowledge can help target high-growth microentrepreneurs; while the average marginal return to capital in our sample is 9.4 percent per month, microentrepreneurs reported in the top third of the community are estimated to have marginal returns to capital between 24 percent and 30 percent per month. Further we find evidence that community members distort their predictions when they can influence the distribution of resources. Finally, we demonstrate that simple mechanisms can realign incentives for truthful reporting."
"Not everyone has what it takes to be a successful entrepreneur. Numerous experimental studies of microentrepreneurs in the developing world find widely heterogeneous returns to cash and credit.1 Yet governments, lenders, and nongovernmental organizations often lack hard information with which to target resources to high-growth entrepreneurs.
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"In this paper we argue that harnessing community information directly from a microentrepreneur’s peers may provide a viable approach to identifying high-growth microentrepreneurs.
"Our argument has three parts. First, we demonstrate that entrepreneurs in peri-urban Maharashtra have high quality information about one another along a variety of dimensions including marginal returns to capital. Their information is valuable for identifying high-growth microentrepreneurs even after controlling for a wide range of demographic and business characteristics. Second we demonstrate that entrepreneurs manipulate their reports to favor themselves, their friends, and their family when the distribution of resources is at stake. Finally we identify several simple techniques motivated by mechanism design that effectively realign incentives for accuracy.
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"Our first main finding is that community members can identify high-return entrepreneurs. While the average marginal return to the grant was about 9.4 percent per month, our point estimates of the marginal returns to capital of entrepreneurs ranked in the top third range from 24 percent to 30 percent. Had we distributed our grants using community reports instead of random assignment, we would have roughly tripled the total return on our investment.
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"Our second main finding is that strategic misreporting is a first-order concern when eliciting community information. By random assignment, half of respondents were told that their reports would be used only for research purposes (the “no stakes” treatment) and the other half were told that their reports would be used to allocate US$100 grants to members of their community (the “high stakes” treatment). The correlation between community reports and true outcomes is on average 27 percent to 35 percent lower when allocation of resources is at stake, which significantly lowers the value of peer elicitation.
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"Our third main finding is that methods grounded in mechanism design theory can be used to design a peer-elicitation environment in which truth telling is incentive compatible. Monetary payments and public reporting do little to improve the accuracy of self-reports. But payments substantially increase the predictive power of reports that entrepreneurs make about other group members. We provide direct evidence that monetary payments reduce the likelihood that respondents favor their family members or their close friends. Finally, we find that public reporting increases the predictive accuracy of reports about others when there are no stakes, but has no effect in a high stakes setting. This nuanced finding may reflect a heterogeneous treatment effect, or a noisily estimated impact of observability on the quality of reports."
The July AER has a number of experiments that speak to market design:
Online,
How to Avoid Black Markets for Appointments with Online Booking Systems By Rustamdjan Hakimov, C.-Philipp Heller, Dorothea Kübler, and Morimitsu Kurino*
Abstract: Allocating appointment slots is presented as a new application for market design. Online booking systems are commonly used by public authorities to allocate appointments for visa interviews, driver’s licenses, passport renewals, etc. We document that black markets for appointments have developed in many parts of the world. Scalpers book the appointments that are offered for free and sell the slots to appointment seekers. We model the existing first-come-first-served booking system and propose an alternative batch system. The batch system collects applications for slots over a certain time period and then randomly allocates slots to applicants. The theory predicts and lab experiments confirm that scalpers profitably book and sell slots under the current system with sufficiently high demand, but that they are not active in the proposed batch system. We discuss practical issues for the implementation of the batch system and its applicability to other markets with scalping.
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In rural Malawi,
Pay Me Later: Savings Constraints and the Demand for Deferred Payments By Lasse Brune, Eric Chyn, and Jason Kerwin*
Abrstract: We study a simple savings scheme that allows workers to defer receipt of part of their wages for three months at zero interest. The scheme significantly increases savings during the deferral period, leading to higher postdisbursement spending on lumpy goods. Two years later, after two additional rounds of the savings scheme, we find that treated workers have made permanent improvements to their homes. The popularity of the scheme implies a lack of good alternative savings options. The results of a follow-up experiment suggest that demand for the scheme is partly due to its ability to address self-control issues.
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In Rwanda,
Recruitment, Effort, and Retention Effects of Performance Contracts for Civil Servants: Experimental Evidence from Rwandan Primary Schools by Clare Leaver, Owen Ozier, Pieter Serneels and Andrew Zeitlin
Abstract: This paper reports on a two-tiered experiment designed to separately identify the selection and effort margins of pay for performance (P4P). At the recruitment stage, teacher labor markets were randomly assigned to a "pay-for-percentile" or fixed-wage contract. Once recruits were placed, an unexpected, incentive-compatible, school-level re-randomization was performed so that some teachers who applied for a fixed-wage contract ended up being paid by P4P, and vice versa. By the second year of the study, the within-year effort effect of P4P was 0.16 standard deviations of pupil learning, with the total effect rising to 0.20 standard deviations after allowing for selection.
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and in India,
On Her Own Account: How Strengthening Women's Financial Control Impacts Labor Supply and Gender Norms By Erica Field, Rohini Pande, Natalia Rigol, Simone Schaner and Charity Troyer Moore
Abstract: Can increasing control over earnings incentivize a woman to work, and thereby influence norms around gender roles? We randomly varied whether rural Indian women received bank accounts, training in account use, and direct deposit of public sector wages into their own (versus husbands') accounts. Relative to the accounts only group, women who also received direct deposit and training worked more in public and private sector jobs. The private sector result suggests gender norms initially constrained female employment. Three years later, direct deposit and training broadly liberalized women's own work-related norms, and shifted perceptions of community norms.
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