Notes on "Poor economics, A radical rethinking of the way to fight global poverty" by A. V. Banerjee and E. Duflo

Poor economics, A radical rethinking of the way to fight global poverty

A. V. Banerjee and E. Duflo

First Edition 

Publisher: PublicAffairs, a Member of the Perseus Books Group, New York, the U.S. (2011)

• Understand how poor people make their decisions
• If there is a “ poverty trap”
• How to really help the poor

Poverty trap or NOT

Yes, there is one

No, there isn't one

When and where we should worry about poverty traps; we will find them in some areas, but no in others

Individuals: food/education/medical care/fertility

• Short-sighted, impatient
• Lack of knowledge and information
• To feel good is the priority

=>making what we think are wrong decisions/lack of incentive

The surrounding environment:

• Prejudice
• Indifference / lack of responsibility (esp. public school teachers)
• Not understand how they think about the problems
• No obvious “food trap” or “education trap”
• When income increases, people tend to buy tasty food rather than more
• Sensitive to price, not very sensitive to income changes
• Judge quality by price
• The poor find ways to force themselves to save despite themselves, which requires a great deal of sophisticated financial thinking they procrastinate and they underestimate the benefit
• The poor are inflexible to make changes, according to their limited savings (very few of them have bank accounts)
• The poor demand much more (bad) health care than preventive services
• Public schools are doing worse than private ones
• There are enough schools and food
• The economic returns of schooling affect the number of enrolment and those who actually receive qualification
• To improve incentive to teach better and learn better is important
• “quality-quantity trade-off” (Gary Becks) might explain why the poor have high fertility
• Rapid economic growth leads to a decline in fertility
• Family with fewer children tend to have higher saving ratio

Institutions: micro credits/insurance/savings/enterprise/polices

The poor live with high a mount of risk:

Not only the poor lead riskier lives than the less poor, but a bad break of the same magnitude is likely to hurt them more

The poor limit risks by: involving in different jobs/being conservative/sprading risk with others -> costly ways to limit the risk

Moral hazard ->helping each other ont

Banks: no suppler or demander

MFIs (microcredit financial institutions): difficult to judge if it helps to improve the poor’s lives.

Gary Becks: the possession of wealth encourages people to invest in becoming more patient: by implication, therefore, poverty makes people (permanently) more impaticent.

Bad market management

Self-awcreness, the lack of self-contal

Fail to save.

The poor save seem to be not only intended to keep the money safe from others, but also to guard it from themselves.

The people who feel they have nothing to lose tend to spend their money.

Not only the differences between rich and poor but also the differences among different poor people (saving behaviour)

Better education will help the poor’s business: tiny->making very little money/->no paid staff

Having high marginal returns,but low overall returns

Investment has little returns, so the poor do not want to invest.

The problems: no new products, limit demand from the market giving simplified tips to help their business is more effective.

Good jobs for the poor: stability

A stable job can, by itself, chage people’s outlook on life in decisive ways.

Institutionalist view:

 If the policies are right, good policies will eventually emerge.

Jeffrey Sacks:

Poverty causes corruption and corruptive causes poverty.

The openness of information may help

Make people more aware of their rights

Democracy

Good policies: good policies can also help break the various cycle of low expectations: if the government starts to deliver, people start taking politics more seriously and put pressure on the government to deliver more, rather than opting ont or voting unthinkingly for their coethnics or taking up arms against the government.

Careful understanding of the motivations and the constraints of everyone can lead to policies and institutions that are better designed and less likely to be prevented by corruption or dereliction of duty.

Conclusion:

• The poor often lack critical pieces of information and believe things that are not true.
• The poor bear responsibility for too many aspects of their lives.
• There are good reasons that some markets are missing for the poor, or that the poor face unfavorable prices in them.
• Poor countries are not doomed to failure because they are poor or because they have had an unforturate history.
• Expectations about what people are able or unable to do all too often end up turning into self-fulfilling prophecies.