The definition of 'Irony'

As some of you may be aware, the son of Muammar El-Qaddafi, Saif Al Qaddafi, recently completed a PhD here at the LSE in the Government department. Here is a link to the full text of his PhD dissertation

A review of two weeks of DV409

Thanks Anita for spotting a review of ALL the topics we addressed in DV409 in the last two weeks.
It discusses the impact of microcredit, how supposedly productive loans are used to satisfy consumption needs, on how not everyone wants to become an entrepreneur and on how the poor need access savings instruments and insurance products....all courtesy of the BBC.

Paying to go to the gym and other problems of self control

As we briefly discussed in class today, consumers tend to be farsighted planners but myopic doers, a terminology introduced by one of the leading figures in behavioural economics, Richard Thaler.

Della Vigna and Malmendier find  some evidence for this when they look at patterns of commitment and attendance of 3 large gyms in the US. Gym goers are often overly optimistic about the probability of going to the gym, subscribing to a monthly membership contract that is more costly in the end than any drop in or 10-class pass contract. You can find a summary of these findings here.

Here  and here  are even more extreme and sophisticated versions of commitment devices to address this problem.

Problems of self control go of course, well beyond gym memberships. A recent paper  describes a randomized experiment that investigates whether problems of self control apply to how people choose to be compensated for work. A shorter summary of the paper can be found here.

The number of potential charter cities in perspective....

Success or no Success?

Here is a list with potential to cheer us up...

A good exercise would be to carefully go through this list and identify whether we have reliable empirical evidence to believe any causal relationship between government policy and stated successful outcomes. This is particularly important in case these "success stories" translate into policy recommendations for a powerful and influential agency like the World Bank. For now, beyond the issues around causality and attribution, the most important contribution of this list is to shed light on the positive side of African development in recent years. This is important as general audiences grow ever more disillusioned with African stories of corruption, pervasive poverty and forseeable failures in reaching the Millennium Development goals by 2015...  

The Millenium Villages debate continues...

Suggested reading from Ingrid!

The importance of low discount rates

As DV409 students saw last term, 'high discount rate' behaviour in governance and policy making was a central focus of macro-development economics. However at the macro level, the underlying causes of high discount rate outcomes are still something of a black box (although there is no shortage of theories).

High discount rate behaviour in individuals (or 'self- or impulse- control' problems) provides plenty of handy examples for illustrating the concept, but in the back of my head I have always more or less assumed that high discount rate behaviour of governments should be an instutitional, emergent outcome from the interactions of an array individuals whose issues with self control were no different from those of any other population.

If you beleive that self control problems in individuals are purely genetic (and have little or no epi-genetic or environmental interactions) then that is probably a sensible conclusion. However if high (or low) discount rates in individuals are partially a cultural or learned behaviour, then it is not so clear. At least one recent cultural phenomenon, the Tiger Mother's parenting manifesto, certainly suggests that. Here is another story from NPR on a recent large scale study that illustrates the enormous importance of self control for life success, and how this can be at least partially taught or influenced.

The extent to which low/high discount rate behaviour is genetic, cultural, and/or institutional has important policy implications. We have seen empirical evidence for all three of these mechanisms - what do you think?

Heaven help Economics!

I still can't decide whether this new paper from world famous economist Robert Barro and his wife (abstract copied below) is evidence that economic decision making permeates even the most unlikely reaches of human (and celestial!!) society, or whether it is just a sign of a coming apocalypse of macroeconomics into absurdity. (Related to Sandra's post below this, there may be a cautionary tale about marriage in there somewhere as well!!)

"Saints Marching in, 1590-2009" by Robert Barro and Rachel Mccleary

Abstract: The Catholic Church has been making saints for centuries, typically in a two-stage process featuring beatification and canonization. We analyze determinants of rates of beatification and canonization (for non-martyrs) over time and across six world regions. The research uses a recently assembled data set on numbers and characteristics of beatifieds and saints chosen since 1590. We classify these blessed persons regionally in accordance with residence at death. These data are combined with time-series estimates of regional populations of Catholics, broadly-defined Protestants, Orthodox, and Evangelicals (mostly a sub-set of Protestants). Regression estimates indicate that the canonization rate depends strongly on the number of candidates, gauged by a region’s stock of beatifieds who have not yet been canonized. The beatification rate depends positively on the region’s stock of persons previously canonized. The last two popes, John Paul II and Benedict XVI (the only non-Italians in our sample), are outliers, choosing blessed persons at a much higher rate than that of their predecessors. Since around 1900, the naming of blessed persons seems to reflect a response by the Catholic Church to competition from Protestantism or Evangelicalism. We find no evidence, at least since 1590, of competition between the Catholic and Orthodox Churches.

Intra-household Dynamics Redux

For those who are yet to find the usefulness of economics (despite DV409's best efforts), here is yet another example of how it can change your life...by helping you manage your relationships!

Branko Milanovic on inequality tonight at the LSE

I've seen some of this material before and it is all very thought provoking - highly recommended
Link to the event information here

Ooops...self-inflicted perils in data collection

Evidence on how the very act of conducting a survey can affect our estimates of the impact of a policy. This adds to the list of effects we have to be mindful of when using primary or secondary data on agent behaviour: the Hawthorne Effect (when participants in a study alter their behaviour in response to being part of the study) and the John Henry Effect (when members of the control group perceive to be in competition with members from the treatment group and change their behaviour accordingly)...

Banking on the move

Here is a new paper on the impact of mobile banking...surprisingly, mobile banking hasn't really taken off in the developed world but it offers great promise for a significant segment of the population in the developing world that still lacks access to adequate banking infrastructure.

New trade theory, productivity growth and ...Ann Harrison!

DV409 students will be familiar with the lead author of this new firm-level study on the productivity growth effects of trade liberalisation. What do you think? Should this become the new class paper for trade next year? I reproduce the abstract here:

Learning Versus Stealing: How Important are Market-Share Reallocations to India's Productivity Growth?

The new trade theory emphasizes the role of market-share reallocations across firms ("stealing") in driving productivity growth, while the older literature focused on average productivity improvements ("learning"). We use comprehensive, firm-level data from India's organized manufacturing sector to show that market-share reallocations did play an important role in aggregate productivity gains immediately following the start of India's trade reforms in 1991. However, aggregate productivity gains during the overall 20-year period from 1985 to 2004 were driven largely by improvements in average productivity. By exploiting the variation in reforms across industries, we document that the average productivity increases can be attributed to India's trade liberalization and FDI reforms. Finally, we construct a panel dataset that allows us to track firms during this time period; our results suggest that while within-firm productivity improvements were important, much of the increase in average productivity also occured because of firm entry and exit.

Of Oscars and Marriage Markets

Hmmmm....another unintendend consequence of female-centric programmes? How will the effect of female-centric programmes be determined by the size, segmentation and nature of marriage markets? Is this reason enough to stop focusing on females and prevent them from pricing themselves out of the marriage market? Or is there an alternative and more creative way to design policies that account for these dynamics?

Unintended Consequences and Double Standards in the Girl Effect

Here and here are two interesting blog posts on how girl or female-centric development programmes can go awry. They follow from our discussions in seminar this week on how development policies should be take into consideration household dynamics and how they mediate policy effectiveness. And of course, the Davos comparison is priceless: an example of how conditionality may be needed to nudge people beyond just bringing a child to school.

Natural Experiments with Foreign Aid

Here is an interesting paper on the rebuilding of Somaliland in the absence of any aid programme. One of the biggest problems we discussed about evaluating the impact of aid is that of omitted variables and reverse causality: is Aid going into poorer, more dysfunctional, or more promising countries/regions to begin with? Also, it is hard to think about a counterfactual: what would have happened to this country in the absence of Aid? We want this counterfactual to be determined exogenously though...if the reason why the country is not receiving Aid is because it has an illuminated, proactive leadership that is trying to show that the country can stand on its own two feet, then it is likely that these governance characteristics play a huge role in growth and development outcomes anyway, regardless of Aid.
While the take-away point from the Somaliland's example should not necessarily be to stop all forms of aid - this may be politically and ethically untenable - it does call out our attention on how to think about mitigating the perverse incentives created by foreign aid, about how much of it is needed, about where can it have the biggest impact, about when it should replace a failed government and when it should just create an enabling environment for the government and its people to thrive.