Poor Economics

Banerjee, Abhijit

more mundane factors such as the adoption of the potato into the diet after the Spanish discovered it in Peru in the sixteenth century and imported it to Europe. One study finds that potatoes may have been responsible for 12 percent of the global increase in population between 1700 and 1900.


emphasis people put on the immediate present limit how much effort and money people are willing to invest


At the broader, societal level, this pattern of beliefs and behavior means that most school systems are both unfair and wasteful.


“Thou shalt not sell thy child’s yam to buy new Nikes”


The Indian branch of Citibank got into serious trouble when it was discovered that it was using “goondas” (local hooligans) to threaten borrowers who did not repay vehicle loans.


The MFIs obviously denied the charges, but before anything could be resolved, the district commissioner of Krishna (the administrative head of the district) decreed that repaying one’s loan to Spandana or Share was . . . illegal. Within days, almost all the clients in Krishna had stopped repaying. At the time of the crisis, Spandana had approximately 590 million rupees ($34.5 million USD PPP) of principal outstanding in the Krishna District, which represented 15 percent of Spandana’s gross loan portfolio across India in 2006. The heads of the various MFIs went to the commissioner’s superiors and got the order rescinded quickly, but the damage was done. People repay because other people repay, so once people stop, it is hard to get them to restart


Awareness of our problems thus does not necessarily mean that they get solved. It may just mean that we are able to perfectly anticipate where we will fail.


The problem is that if the state is weak or corrupt, the free market will tend to naturally reemerge via bribes and corruption


The fear of decoys was sufficient to lead the police to do their job better. Top-down monitoring is not a particularly new idea. But audits and decoys seem to be effective, presumably because once the information is out there, there is some chance that it will be used to punish the offenders. A few people within the system who believe in fighting corruption may be enough.


Power to the people, but not all the power.


Brazil is one country that has tried to provide voters with useful information about candidates. Since 2003, every month, sixty municipalities are drawn at random in a televised lottery, and their accounts are audited. These audit results are made public through the Internet and the local media. Being audited hurts corrupt incumbents. In the 2004 election, they were 12 percentage points less likely to be elected if their audit was revealed before the election. Honest incumbents, on the other hand, were 13 percentage points more likely to be elected if their audit results were revealed just before an election. Similar results were found in the slums of Delhi: Voters who were informed about the performance of their incumbents voted against incumbents when they had done poorly.


Governments exist to a large extent to solve problems that markets cannot solve—


The risk of corruption and neglect is thus endemic in any government, but it is likely to be more severe in three circumstances: First, in cases when the government is trying to get people to do things whose value they don’t appreciate, such as wearing a helmet on a motorcycle, or immunizing a child. Second, when what people are getting is worth a lot more than they are paying for it; for example, a hospital bed provided free to those who need it, regardless of income, invites a bribe from richer people who want to jump the queue. Third, when bureaucrats are underpaid, overworked, and not well monitored, and have little to lose by getting fired anyway.


The rules were (obviously) not designed with the objective of undermining the effectiveness of the entire health-care system in India. On the contrary, they were probably put on paper by a well-meaning bureaucrat, who had his own views of what the system should do and did not pay too much attention to what that demanded on the ground.


Good politics may or may not be necessary for good policies; it is certainly not sufficient.


Good policies can also help break the vicious cycle of low expectations: If the government starts to deliver, people will start taking politics more seriously and put pressure on the government to deliver more, rather than opting out or voting unthinkingly for their co-ethnics or taking up arms against the government.


This result suggests that a credible message can convince the voters to vote in favor of general-interest policies. Once the trust is there, the individual politician’s incentives also change. He can start to feel that if he does something good he will be appreciated and reelected. Many people in positions of power have mixed motives—they want to be loved or do good, both because they care and because it secures their position, even when they are corrupt. These individuals will do things to promote change, as long as they are not entirely inconsistent with their economic objectives.