Tuesday, October 13, 2015

Mullainathan on Development Economics (2006)

Sendhil Mullainathan, “Development Economics Through the Lens of Psychology.” Proceedings of the Annual Bank Conference on Development Economics, 2006 [pdf].

• Parents claim to value education highly, but kids attend school sporadically. The problem seems to be the short-term decisions by the parents, so it might be best to target those decisions. The provision of meals in schools might help, and perhaps collecting school fees in small, regular payments rather than as one large, annual payment. Policies that increase school attendance also might improve teacher morale.

• ROSCAs serve as savings commitment devices, promoting regular, small deposits. The lottery-like, skewed payoff is a commitment not to spend the savings until there is a major purchase. Holding wealth in illiquid forms such as jewelry or livestock also helps solve commitment problems. If the access to microcredit undermines other savings commitments, then the mere profitability of a micro-lending program is not a good indicator of its social value.

• Making banks available to rural dwellers might make saving, and not spending, the default condition, providing some commitment. 

• Loss aversion suggests that there is a lot to be said for protecting status quo positions in the course of reform. Existing stakeholders might be grandfathered, as a means to avoiding the imposition of losses.

• People look at the world in a biased way, and can perceive failures of reciprocity even where they do not exist. They might conform their behavior in accord with a negative stereotype. 

• Development policies can be aimed at solving internal problems (commitment, self-control, bias) as well as external problems. 

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