Poor Economics, Social Impact & Us

Courtsey: A.Bannerjee, E.Duflo & W.Easterly, D.Moyo... Jeff and Rohit!

Agenda
What is poverty Anomalies in behaviour
Understanding the poor

SIP
There are two sides to the coin What can we do?
Disclaimer

Story of Farmer Kennedy

As told by Angelina Jolie!

What does poverty mean

The Poverty Line in India is 16 rupees per person per day ~ $1/day
26% of India is BPL Average GDP per capita $1500 : $5/day

The poverty line in the USA is $14/day.

Average GDP per capita US $47,400 : $129

865 million people in the world live with less than 99 cents per day

BPL - world

Population living on <$1.25/day

Poverty Is Not Only Lack of Income

But also:
Poor health : 9 million children every year die under the age of 5, mainly of preventable disease Poor education : 50% of children enrolled in school in India cannot read a simple paragraph Poor quality of life: hours collecting water instead of playing, working, learning. Difficulty to realize your ambition: Get a loan for a business, be insured for the risk of your farm

The Aid debate

Since 1980s $600 Billion Jeffery Sachs
Poverty trap Aid kick-starts virtuous cycle

William Easterly and Dambisa Moyo

2/3rd goes to corrupt dictators Inhibits democracy, trade and develeopment

The case of Pak Solhin

40s Wife, three children, Indonesia
Farm Laborer -> Increase in fertiliser prices -> Drop in labor demand -> Low salary -> Cant feed on that salary -> so cant take job -> picks easy fishes, cant swim -> too old to get more skilled/labor job First few calories just enough to survive, not to get strength

The income-growth curve

When does a poverty trap emerge?

When we compare the different curve, there is something specific about the first curve
The S-Shaped curve intersects the 45 degree line from below: So the poor become poorer (up to a point) At some higher income, the rate of growth of income start increasing

How does it matter?

Aid debate = Is there a poverty trap?

How to find out
Enter RCTs J-PAL

www.pooreconomics.com

Testing for poverty traps

Nutrition based trap Health based trap Education based trap

Nutrition trap
Do poor eat as much as they can
In Udaipur, poor household could spend up to 30% more rest in tobacco, alcohol, festivals, sweets etc When chance to spend a bit more on food
Calories per rupee - millets (jowar and bajra) > Wheat and Rice. Yet 30% is spent on tastier

Is it that poor are small = dont need to consume more. Indian women BMI only > Eritrea (81 country) Has calorific consumption gone down because of less physical work? Lack of Iron leads to lethargy and less aerobic capcity. Leads to significant health issues for pregnant women and its foetus
Cost of fortified fish oil is $7/year productivity gain $47/year

Nutrition trap
Solhin gets access to free rice Rakshin program, gets family help Studies show deworming for 2 yrs leads to $3269 more lifetime earnings
Costs $1.36 pp/yr

Problem is not the quantity of food (not for American farmers!)

It is quality, certainly, and a lot of other factors (psychological, knowledge, human weakness)

Health trap
Story of Malaria and medication
880,000 deaths/year 91% in Africa; 85% <5 yrs Bed nets cost $14/5yrs Benefits have a multiplier effect For and against
Economic externality Psychological sunk cost

Sachs argument
Cost $14USD/5 yrs Malaria-free child earns 50% more Average income $590 => saving 30%($295) >> $14

Economic externality
Traditional economics tells us that, whenever there is an externality, such that the private incentives are not aligned to the social benefit, tax or subsidies should be used to align private incentives

Less conventional economics

Sunk cost
No skin in the game

Entitlement effect
People will expect other things to be free

Sachs vs Easterly debate continues

Health trap

Health trap
Solution
Ask the right questions Price-elasticity of nets
Avoid Bias dont compare across homogenous samples -> RCT

What is the effect of adoption when already free nets are given self or neighbour

Demand at various prices

Demand when nets were not free

Health trap
Medication - Low hanging fruit?
9 Million die < 5yrs 20% die of Diarrhea
Simple, cheap, available cure ORS But the mother wants antibiotics and IV drips Chlorine ($0.18) can prevent for family of 6 10% use it

So, are the poor unwilling to spend on health issues?

Health trap
Ibu Emptat, Indonesian, wife of a basket weaver (summer 2008), her husband was having trouble with his vision. She had to borrow money from the local moneylender
100, 000 rupiah ($18.75 USD PPP) to pay for medicine so that her husband could work again, and 300,000 rupiah ($56 USD PPP) for food for the period when her husband was recovering and could not work (three of her seven children were still living with them). They had to pay 10 percent per month in interest on the loan. However, they fell behind on their interest payments and by the time we met, her debt had ballooned to 1 million rupiah ($187 USD PPP); the moneylender was threatening to take everything they had Son falls sick and cant be treated health trap?

Health trap
Lot of cheap/high-ROI options
Access to clean water
$20/month per household not many govt can afford Gram Vikas does it cheaper in Orissa. But in Orissa its also a social issue high caste people wont allow pipe connecting everyone

Chlroine costs 1/4th the cooking oil price < 40% of babies are breast-fed for 6 months

So, ladders to get out of poverty are probably there

Health trap
Udaipur very remote
1.5 miles only to nearest free public health 25% visits Bhopas (25%) and Bengalis (50%) instead most unqualified All under-diagnose and over-medicate (3-3-3 rule)
3 minutes, 3 questions, 3 medicines

So is bad attendance, reliablility the issue?

Seva mandir initiative -> 6-16% still, 8/10 not vaccinated

Is it sunk-cost effect: Free/cheap => worthless

Easterly Nets=Wedding veils, Toilets = flowerpots
TAMTAM :: not true

Health trap
Faith!
US/UK many refuse to vaccinate against measles, rumoured links to autism Poor believe O.S drugs are ineffective

Not much conviction though

Same people go to Bhupa, bengali and PHS Seva Mandir 1Kg dal experiment 6-38%

Still 77% first shot without incentive 38% full five shots

Education trap
Shantarama
Widowed mother of six. First three schooled. Next two dropped out

Schools available, free in most places now

Still 15-50% absenteeism

The supply vs demand argument

MDG talks about schooling. Not learning 2002-03 Absenteeism survey
Bangladesh, Ecuador, Peru, India & Uganda Teachers abscond 1 in 5 days

ASER/Pratham survey (7-14 yrs), 2005

30% cant readh 1st grade level. 60% 2nd grade. 70% 2nd Math

Education trap
Demand
Education is an investment => ROI drives adoption
2002, Bob Jensen, UCLA, BPO recruitment
5% increase in women enrolment; Girls weighed more!

Because parents decide to push or pull

Santiago Levy, BU, Mexican minister

Welfare with strings attached CCT very succssful Compensation for wages lost allows parents to focus on future

Supply is not useless

Indonesia Suhartos oil money built lot of schools
8% extra wage for each year of schooling

The answer
(Right) Aid + Education + implementation 3 Is
Ideology Ignorance Inertia

Education
Health Economics Risk! Insurance! Investment

Most important DATA!

SIP Projects - RapidFTR

Conceived at, by a team of students in Clay Shirky's Design For Unicef class. Further developed by Jorge Just as his Masters thesis Why?
2009, 43.3 million children displaced Current record systems take 30-45 mins. 1:10,000

Why not Google person finder?

Rails, CouchDB, Mobile

Testimonials
Presented at Qcon 2010 RapidFTR was named one of the Top 10 Open Source Rookie Projects of 2010 by Black Duck Software (among Diaspora, OpenStack etc) Martin Fowler on how RapidFTR code Jams work:
To make meaningful progress, you need someone to prepare for each code jam by breaking down work-items into something small enough that people will be able to finish them during the time at the jam. Whatever people may say and hope, they'll rarely work on the project outside code jam hours, and the schedule is too infrequent to want half-done things hanging over. Small tasks allow teams to make perceptible progress each jam - which helps keep motivation high. We like to put these tasks online before each event so people can prepare if they want to, or just get a feel for what we're working on. We also set up a mailing list to keep up regular communication on the jam and support anyone who does contribute outside of the jam.

SIP Projects - OpenMRS

Regenstrief, (since 1970s) in collaboration with PIH (Boston) and MRC (South Africa) -> OpenMRS MISSION is to improve health care delivery in resource-constrained environments by working together as a global community to create a robust, scalable, user-driven, open source medical record system platform Fight the big 3 epidemics: HIV/AIDS, TB, Malaria -> kills close to 40 Million every year
Unskilled care providers + badly designed spreadsheets/databases Possibilities of fatal mistakes

OpenMRS

Java, Spring, Hibernate, MySQL, Groovy, XForms, jQuery, Maven, Jetty

SIP Projects - Camfed

In sub-Saharan Africa:
24 million girls can't afford to go to school. A girl may marry as young as 13 and has a one in 22 chance of dying in childbirth One in six of her children will die before the age of five

Research shows if you educate a girl shell:

Earn up to 25% more and reinvest 90% in her family. Be three times less likely to become HIV-positive. Have fewer, healthier children who are 40% more likely to live past the age of five. Since 1993, Camfed works in Africa to show how the problem of girls' exclusion from education can be tackled.
Rails, Redis, Salesforce

SIP Project Not B&V

OpenLMIS, Mifos, JSS VictoryKit ? WhoMadeMyPants Black Girls code, CodePink, Wikimedia, I love Iran, Bpeace