I while back I posted about a neat new podcast run by some of the individuals who make up the Accord Research Alliance. The Accord Research Alliance is a group of people who are interested in implementing monitoring, evaluation, research, and learning initiatives in their work with faith-based international development. One of their members, Nathan Mallonee from Living Water International, was nice enough to invite me to contribute to their podcast series. We recorded the episode a while back and the podcast is now available.
I am pleased to report that my paper – written with co-authors Duncan Boughton, Kyan Htoo, Aung Hein, and Ellen Payongayong – “Measuring Hope: A Quantitative Approach with Validation in Rural Myanmar” (working paper version here) is now officially forthcoming in the Journal of Development Studies. Here is the abstract:
What is a “Gustibus Multiplier”?
That is what I thought when I read the title of Michael Carter’s recent paper in Agricultural Economics entitled, “What farmers want: the ‘gustibus multiplier’ and other behavioral insights on agricultural development“.
In David McKenzie’s most recent Weekly Links, he posted a link to an interview with Erik Hurst, who is an economist at the University of Chicago’s Booth School of Business. The interview spanned a wide range of topics including Erik’s work on income inequality, the decline of the US manufacturing industry, college attendance, and (what Erik calls) endogenous gentrification. The whole interview is fascinating to read, but I’d like to highlight one part of the interview that I find particularly interesting.
Question: Many people have an image of the typical entrepreneur in their head and it often includes a significant taste for risk and large long-term aspirations. What does your work on entrepreneurship suggest about that profile?
Erik Hurst: Most small businesses are plumbers and dry cleaners and local shopkeepers and house painters. These are great and important occupations, but empirically essentially none of them grow. They start small and stay small well into their life cycle. A plumber often starts out by himself and then hires just one or two people. And when you ask them if they want to be big over time, they say no. That’s not their ambition. This is important because a lot of our models assume businesses want to grow. Thinking most small businesses are like Google is not even close to being accurate. They are a tiny fraction.
My work with Ben Pugsley has been emphasizing the importance of nonpecuniary benefits to small-business formation. Because when you ask small-business people what their favorite part of their job is, it’s not making a lot of money. They do earn an income and they’re very happy with it, but they get even more satisfaction from being their own boss and having flexibility and all of those other nonpecuniary benefits that come with being the median entrepreneur in the United States.
In our culture we seem to want to subsidize small businesses because it’s the American dream. I think that could be fine, if you believe that there’s a friction out there preventing some small businesses from starting or growing. But you might want to target that friction directly as opposed to targeting all small businesses generically. Ben and I have a recent paper in which we show in a simple model that if you subsidize all small businesses, in a world with nonpecuniary benefits being the big driver of small-business entry, the policy is highly regressive. Why? High-wealth people are already small-business owners because they can afford the nonpecuniary benefits that come with owning a small business. So in that world, we’re basically just transferring money to high-wealth people when we subsidize small businesses overall, and that’s something we need to consider.
Excellent points, I think. I’ve been having discussions with some colleagues of mine about similar issues in developing countries. A lot of very popular international development policies aim to support entrepreneurship in developing countries (i.e. microcredit, business skills training, etc.). Unfortunately many of these programs often fail to pave a smooth and wide road out of poverty for the average household. One reason to explain this failure is that it seems many assume that everyone who owns a business is an entrepreneur who is risk-loving and aspires to grow and expand their business beyond it’s current level. This assumption breaks down in many developing countries (in similar ways to how Erik describes the breakdown in the US).
This has lead my colleagues and I to conclude that we many need a different word for, and a method for identifying, an “entrepreneur who doesn’t aspire to grow their business”. This sort of semantic and empirical innovation would have several interrelated benefits.
First, it would help policymakers better target certain policies and programs to individuals who would actually benefit from the program. Instead of rolling out a micro-loan product or a business skills training program to the population in general (which may lead to either diluted average effects or regressive benefits – as discussed above) programs could target specific individuals who actually aspire to grow and expand their business. Including everyone else will be wasteful because even if all the necessary external constraints are lifted (i.e. credit, skills, insurance, access to markets, etc.), these individuals may still not grow their business because they do not desire to do so.
Second, this innovation would also help empirical development economists who run experiments to estimate the impacts and cost-effectiveness of policies and programs. If it were possible to correctly diagnose development interventions that aim to support entrepreneurship and administer them only to those who are risk-loving and aspire to grow their business then, statistical tests would be much more accurate. As Bruce Wydick explains in a recent blog post on Diagnosis and Development Impact:
Suppose that a is the average treatment effect of an intervention on the properly diagnosed, e is the externality of the intervention to all others in the treatment group (with no externality to the control), and d is the percent of the treatment group that is diagnosed correctly. In this case, the ITT is just the weighted average of these effects between the properly diagnosed and others (the misdiagnosed) and is ad + e(1 – d). To estimate the ITT with 95% confidence and 80% power, the condition must hold that ad + e(1 – d) = 2.8SE , or that the percent correctly diagnosed must be equal to d = 2.8SE – e / a – e (where 2.8 is the sum of corresponding z-scores of 1.96 and 0.84 and SE is the standard error.) Assuming a > e, first differentiation shows this yields a negative relationship between d and e; analysis of the second derivative shows the relationship to be concave, as shown in the figure [in this link]. This yields a continuous set of statistical power contours that illustrate the trade-off in ITT estimations between correct diagnosis and the strength of externalities within the pool of subjects exposed to the intervention. Statistically speaking, the result is quite similar to the loss in statistical power one experiences with a treatment that is targeted at treatment group, but where very few people actually take up the treatment.
So, I’d say we need to think of a term for “entrepreneurs who don’t aspire to grow their business”. That is the first hurdle to jump. The second is to find ways to effectively diagnose risk aptitude and aspirations (or better yet hope for business growth). Some ideas come to mind – methods for estimating risk preferences are well established and I have a working paper currently out for review that makes some initial steps in validating a method for quantifying measures of hope and aspirations – but these methods need to be further investigated and tested.
HT: David McKenzie
Over the past year an a half I’ve been working as a Research Assistant with the Feed the Future Innovation Lab for Food Security Policy – Burma. Housed at Michigan State University, the project is generously funded by USAID’s Bureau of Food Security. It has been a tremendous experience. I’ve traveled to Myanmer twice (see blog posts and pictures here, here, and here), I’ve provided technical support for both rural household survey administration and calculating price volatility, and was able to create and implement my own survey aiming to quantitatively measure a concept commonly known as hope.
This work on measuring hope is what ultimately became my MS Thesis. I’ve written quite a bit about this work. First in the Economics That Really Matters blog, then in the Global Food For Thought blog, and in USAID’s Agrilinks blog, along with many other of my own blog posts along the way. This was my first real academic research project that I was able to oversee from start to finish. It was a lot of work, but an experience I found out that I particularly enjoy.
You can find my entire MS Thesis posted on the MSU AFRE website. As is often the case with these things, the Thesis itself became quite long. So since its completion, I’ve been trying to break the whole document down into shorter, more journal-style papers. I’m happy to say, I’ve succeeded on one such paper so far:
Measuring Hope: A Quantitative Approach with Validation in Rural Myanmar. Here is the abstract:
Development economists are increasingly paying attention to the role of hope in observed behaviors relating to investment, production, and consumption decisions of the poor. Although several studies have examined how the concepts of hope and aspirations may fit into existing economic theories, empirical studies have yet to validate a reliable approach to measure hope. This paper seeks to fill this gap by adapting a quantitative approach to measure hope, developed by psychologists, to the context of rural Myanmar. We present three empirical tests of measurement validity. This study finds that the hope measurements seem to be correlated with expected determinants in a way supported by theory, are similar but distinct from other psychological concepts, and are positively correlated with welfare perceptions. This study provides an initial foundation for viable and reliable quantitative measurements of hope in developing countries and identifies future avenues of research to improve the measurement of hope.
We’ve just submitted this paper to a journal, but if anyone has any comments or feedback, my co-author and I would love to hear them.
One concern that comes with considering depression or aspirational thinking as poverty trap mechanisms is the possibility this opens up for one to blame the poor for the situations in which they find themselves; i.e. it is tempting to shift from considering the poor as trapped by outside constraints (such as market failures) to considering the poor as trapped by their own negative thinking. However, as pointed out by several scholars during the workshop, it is much more productive to think about the sort of physiological interventions suggested by these mechanisms as compliments to, rather than substitutes for, traditional interventions. If project implementers and project evaluators take account of not just the common external constraints (e.g. lack of access to credit) but also the emerging internal constraints as discussed in this session (e.g. aspirations), then we may begin to have a greater impacts and/or gain better understanding of the limitations of our interventions.
That is Kibrom Tafere Hirfrfot and Liz Bageant in a recent Economics That Really Matters blog post recapping the recent NBER Conference on The Economics of Asset Dynamics and Poverty Traps.
I wholeheartedly agree with this sentiment. Simply suggesting that the poor should try harder is the wrong conclusion to draw from the emerging research on the psychology of poverty, hope, and aspirations in developing countries. Other than adding psychological components onto traditional interventions, a rather obvious policy implication of this research seems to be to create an expanded role for clinical psychologists (particularly child psychologists) within development programs.
The two papers presented at the NBER Conference about this topic strike me as important for development economists to consider. Jonathan de Quidt and Johannes Haushofer’s paper on depression develops an illustrative model of why economists should consider how depression impacts human behavior and economic outcomes. Travis Lybbert and Bruce Wydick’s paper on the economics of hope (a paper I’ve mentioned many times already) makes, in my mind, a very important contribution in showcasing the potential power of hope and aspirations.
Frequent readers of this blog will know that I’ve been thinking a lot about the psychology of poverty over the last year or so. Because of this, it is encouraging that researchers much more established than myself are bringing legitimacy to this line of scientific inquiry. I’ve come to the conclusion that a more complete understanding of the real-life psychological impacts poverty inflicts on people will allow for more effectively designed policies.
Additionally, this research seems to extend beyond narrow application in developing countries and into other important topic areas such as refugee resettlement policies and racial justice policies in developed countries.
These days my work is filled with pre-testing and revising, and repeating. Every day. It is challenging and tedious but also entertaining and fun.
One of the key tasks is correctly translating the survey from English into Burmese (technically it’s ‘Myanmar language’, but that’s hard to say). This process, as you many imagine, is quite involved. We spent quite a bit of time the other day thinking about the difference between these two statements: “I am energetically pursuing my goals” and “I am meeting the goals I have set for myself”. After carefully translating the English survey into Burmese the survey is then translated back into English. This allows us to identify instances where the translation is not quite right.
Following this, we go out to local villages and pre-test the survey. This allows us to identify where questions and statements in the survey need to be worded better so that respondents can best understand what our enumerators are asking.
We have received many very interesting reactions to our questions as this survey is a bit unorthodox (as household surveys in developing countries go).
One question in our survey asks how much land does [the respondent] want to own. One older man did not want to answer this question because, as he said, such things are only for children to think about. At risk of reading too far into this statement, I am going to read into this statement.
Perhaps he is saying, as an adult we have to be realistic about our dreams. It is nearly impossible for me to achieve much more land than I currently own (he currently only owned the land on which his house sits). Part of the literature on aspirations in developing countries supports the idea that the experience of living in poverty squelches and prohibits the formation of aspirations (goals and dreams). Perhaps, this is what this man is saying: When I was a child I had dreams of owning lots of land, but now that I’m an adult (who is living amidst life-stealing poverty) I know what is actually possible for people like me and owning more land is simply not achievable. The hope of owning more land is child’s-play. I’m not certain I have it 100% correct but somewhere in his short answer there is a profound lesson about the reality (and tragedy) of living a life in poverty.
Another man launched into a story: “My life is like that of a gardener”, he said. “I plant many fruits and vegetables but reap almost nothing because pests have destroyed my crop.” (He later made clear, pests were the government.) Another part of hope theory, as developed by social psychologists, is that hope includes a certain amount of personal agency – the belief in ones ability to succeed and accomplish the goals one has set for him or herself. Again, I’ll risk reading too far into this statement: It sounds like this man is stating that no matter how hard he works, his future outcomes are ultimately determined by the “pests” in his life.
Social psychology has developed an idea of “locus of control”. People can be characterized as having either an internal or external locus of control. Meaning, control over the future is within oneself or outside oneself. An external locus of control is thought to be correlated with feelings of hopelessness and leads to low levels of effort in investments or other (so-called) “rational behaviors”. Our survey is focusing on the three ingredients of hope: aspirations, agency, and avenues with validation checks by also asking about the closely related topics of self-efficacy and locus of control. It’s exciting, sobering, sweaty, dusty, challenging, and fun work. Stay tuned for more on this topic.
Another year has gone by and I’m still blogging. Here are a list of the top posts from the past year, listed in order of popularity.
This past week in my class on Agriculture in Economic Development (taught by Dr. Nicky Mason and Dr. Saweda Liverpool-Tasie) I presented Michelle Adato, Michael Carter, and Julian May’s 2006 paper on poverty traps and social exclusion in South Africa (sorry, it’s gated, but my slides are here) published in The Journal of Development Studies. As part of the discussion following my summary of the article I posed the question to the class, “Are poverty traps in South Africa real or imagined? And does it matter?”
To bring those who are not in the class up to speed, here are some facts and figures (from Adato et al., 2006) about poverty and wealth dynamics in South Africa.
Post-Apartheid South Africa is characterized by extremely high income inequality and extreme social polarization. Importantly, these two realities are (almost perfectly) correlated with each other. As an example of this reality (in 2001, at the time of the study), the HDI (human development index) for black South Africans was roughly that of the HDI of Zimbabwe while the HDI of white South Africans was roughly that of the HDI of Italy. Big difference!
In this table several points reveal themselves. First, we see from the basic poor/non-poor distinction it seems a greater number of the surveyed population is living in poverty over time (or at least from 1993 to 1998). Digging deeper, we see that 18% of the surveyed population was poor in both 1993 and 1998 while 35% of the surveyed population changed poverty distinctions between 1993 and 1998. Finally, a large share of the “chronically poor” simply don’t have the stocks of assets one would expect is needed to break free from poverty, and those who fell behind over the time period did so because of some sort of lose of productive assets.
This figure presents the results and implications of the Adato et al., (2006) paper. Here we see the existence of a low-level poverty trap at about 90% of the income (consumption) poverty line. Additionally, there seems to be a Micawber Threshold (named after the Dicken’s character Wilkins Micawber who can never break free from poverty) at about twice the income (consumption) poverty line. What this means is that those who have asset holdings below the “Micawber threshold” can be expected to converge on the poverty trap while those who have asset holdings above the “Micawber threshold” can be expected to converge toward a non-poor equilibrium over time.
What this means in simple terms is that for some people in South Africa, time is on their side. As the days, months, and years go by they will experience an increased and more freeing level of livelihood. For other people in South Africa, time is not on their side. As the days, months, and years go by they will not experience an increased and more freeing level of livelihood.
This analysis seems to be demonstrating that some people in South Africa may be effectively trapped in poverty and that the end of apartheid did not pave the road out of poverty for them. To belabor the point, liberalizing political policies did not bring with it the levels of livelihoods commonly associated with liberal democracies. The question remains, what is causing these people to be trapped in poverty? Why don’t we see time working for them?
In a different paper Michael Carter and Chris Barrett (2006) state that poverty traps can form when there are increasing returns on investments as incomes rise and when credit and insurance markets are out of reach of the poor. Those are certainly very probable causes of the poverty trap in South Africa, but what if returns on investments were not increasing with wealth (what if returns were decreasing!) and what if credit and insurance markets were available and accessible for the poor in South Africa? Could there still be a poverty trap?
A growing number of development economists are saying “yes”.
Consider the case of South Africa a bit more closely. Say I’m a black South African. There are many investment opportunities that I have access to that would most likely improve my future well-being. I still might not actually take up any of these investments. Why? Because the social situation around me has failed to develop and nurture the aspirational hope and human agency necessary for such behavior.
So are poverty traps (in South Africa) real or imagined? Well, it’s been demonstrated how real poverty traps (increasing returns on investments with wealth and limited access to credit and insurance) may significantly determine poverty and wealth dynamics. An emerging literature is forming, however, on how imagined poverty traps may also play an important role.
After my last post, my grandpa left the following comment:
My father experienced some of the kind of poverty you write about when he was growing up in the Netherlands. The “hope” factor for him was emigrating to the USA, for which I (and you) owe our very lives…
This brings up an important point that (a) was backed up by ALL of the households I visited in the rural areas of Myanmar (b) has implications for voters in the United States and other Western nations and (c) for full disclosure, confirms my priors on the topic of immigration.
Migration is the most effective poverty alleviation method on the planet ever. Full stop.
Consider this. I visited households in six villages in one region of Myanmar. We talked to people at random and every household had someone in their family who was living or had lived abroad. Most of the time the family member was in Thailand. It is relatively easy for someone from Myanmar to broker a deal to get into Thailand, even if it is illegal. (I don’t have any evidence to back this up, but it is not difficult to imagine that these desperate migrants would be super-vulnerable to human trafficking.)
One household had a son who had even made it to the United States as a refugee and was working in a fast food restaurant. He was sending back remittances and they were the richest household in their village.
Think about that for a second. Their son is working in the United States in a fast food restaurant (probably making minimum wage in a job most Americans above the age of 17 wouldn’t accept), he sends back his excess income, and they are the richest household in the village…
This story and my own family history demonstrate the transformative power of international migration.
Dani Rodrik (an economist at Harvard) is writing a book on the economic and moral imperative to open our borders. Here are some striking figures:
Letting someone migrate to the West does so much for their wealth, at so little cost to Western workers, that we (the West) have to care about a random person inside our borders five times as much as someone on the other side to justify not letting the outsiders in.
Or we have to value whatever we think we get from closed borders (protecting the culture) so much that we’re willing to deny other human beings a path from poverty.
So here’s the point:
If you’re a regular reader of this blog you’ll remember that psychologists say hope is comprised of three elements that interact and feed off of each other: goals, agency, and pathways. Therefore, if my experience chatting with people from rural villages in Myanmar indicates the true reality, that migration is one of the (if not the only) pathways out of poverty and if we believe hope is an important characteristic to posses, then we have two options:
(1) We should help improve the local situation so that migration isn’t the only viable pathway out of poverty. (This is proves challenging. Development is a long-term, frustrating, slow, and sweaty business that isn’t very glamorous and doesn’t photograph well.)
(2) We should take strides in allowing for safer, cheaper, easier, and legal international migration.
While we should probably do both, if you’re from the West (and are not a development practitioner or an economist at the IMF) the easiest and simplest way to bear witness to hope is by voting for the opening of our borders. It is simply the most effective, most direct, most dynamic way we (those who have already benefited from international migration) can make a difference in the lives of the poor and vulnerable around the world.