Tuesday, May 24, 2011

Poor Economics

Examining the world through randomized control trials, Esther Duflo and Abhijit Banerjee's new book summarizes findings on what works, and what really might not, in development policy and practice.

The book's conclusions are based on two premises. First, use data to try and understand the real drivers of behaviors like school attendance and condom use. Second, assume the "poor" are making choices that are just as rational or irrational as anyone else - just that they have different information and constraints. If it isn't clear what those choices are or why they'd be made, keep looking.

The true excitement of the book bubbles from the small diamonds of insight that could dramatically affect human development outcomes (on either a micro or macro scale).

For example, in certain countries, could providing free school uniforms be a key to reducing teen pregnancy and HIV infection rates in teen girls?

Could be.

Check it out. http://pooreconomics.com/

Then check out some criticism on Chris Blattman's blog here.

Saturday, May 14, 2011

Good trade/Bad trade

Consumers who want to consume products like coffee 'responsibly' - and for now let's define responsibly as:  farmers getting a price for their raw product that reflects the pricetag a western consumer pays supported by contracts that don't put the farmer in a vulnerable position - could have a few reasons for doing so. For example, a fair trade is one in which no one gets ripped off, so there's an ethical fairness to feeling like you've made a better bargain. But what, I presume, most people think is that 'fair trade' coffee offers farmers better prices and therefore better livelihoods. So people buy products that are 'fair trade certified' in the hopes that they're doing something good for the farmer, and perhaps, the world.

That might not be the case. Not for the first time, but worth reiterating, is that maybe being 'fair trade certified' isn't so good for the farmer. Lawrence Solomon writes in the Financial Times about the costs of certification and cites recent research from the University of Hohenheim that finds farmers with 'fair trade certification' after 10 years seem in worse poverty than non-fair trade farmers.

Read Lawrence Solomon's post here.
Access the paper in "Ecological Economics" - the May 2011 edition.

Certifications play different roles - one of them is to help consumers make choices that align with their values. (Others, for example, like "FDA Approved" are intended to help them make choices that are safe.) As more and more consumers become concerned with being 'responsible,' these certifications matter to more people. They can either use this to drive down the cost of certification (as increased scale reduces costs), or exercise pricing reflective of their monopoly on the market. If this is the case, strong consumer preferences for a 'certified' product could be exerting market pressures that are pushing farmers into deeper poverty. That is not the point. (I dispute that it will lead to a proliferation of certifications, because the beauty of the certification is that it becomes recognizable.)

This only adds confusion to the increasingly confused world of 'responsible consumption.'