This week's faiV is book recommendations.
1. Entrepreneurship, Social Investment and Not-so-Social Investment: Scott Shane's The Illusion of Entrepreneurship is a great overview of entrepreneurship research in the US, a body of knowledge that is a lot more applicable to developing contexts than is generally acknowledged. For those wishing to spur social businesses, going to back to first principles of corporate finance and principal-agent problems is a good idea--check out Henry Hansmann's The Ownership of Enterprise. There's a lot of entrepreneurship in the secret spaces of the web, though its generally not what we think of when you use the word entrepreneur. Here's a guide to The Dark Net.
2. Memorial Day: The reason for the holiday in the US is it's Memorial Day, to commemorate the sacrifice of those in the Armed Forces--what's usually invoked is fighting for or defending freedom. I always tend to think of The Gettysburg Address. It's not just soldier and sailors who fight for freedom and to defend rights; Letter from a Birmingham Jail is a good reminder of other fighters. Sometimes you fight for your rights by leaving--The Warmth of Other Suns is the story of the Great Migration in the United States when African-Americans pursued freedom by moving out of the South en masse (I can't quite put my finger on what present situation it makes me think of...). The use of power in pursuing virtuous ends is tricky, and something we should think about more on weekends like this, perhaps by reading Reinhold Niebuhr's The Irony of American History.
Read More1. Microcredit Impact: One way to judge the impact of microcredit is randomizing access. Another way is to see what happens when microcredit is suddenly taken away. There are two new papers that use the latter approach based on the sharp reduction in lending that ensued from the Andhra Pradesh crisis in 2010 (has it really been that long ago?) by Emily Breza and Cynthia Kinnan, and Banerjee, Breza, Duflo and Kinnan. BK find decreases in wages, wage earnings and consumption concentrated among poorer borrowers when microcredit goes away. BBDK find sharp heterogeneity in effects on "gung-ho" entrepreneurs and "reluctant" entrepreneurs of access to and then loss of access to microcredit. Of course, that leaves the question of the underlying differences between gung-ho entrepreneurs and reluctant entrepreneurs. Could it be aspirations? You should ask Stefan Dercon or Bruce Wydick about that.
2. Income Volatility: This week, the Aspen Institute launched the website for the Emerging Prosperity Impact Collaborative, an ongoing effort to draw attention to emerging economic issues that affect household financial security in the United States. The first year is focused on income volatility, inspired in part by the US Financial Diaries. EPIC has an overview paper, some cool data viz, and videos (some better, some worse) of researchers and practitioners discussing income volatility and its effects.
Read More1. Online Lending: Lending is hard. And not just because of the difficulty of assessing creditworthiness. Lenders are intermediaries, matching borrowers and investors, which means there are lots of principal-agent problems and a thicket of rules, regulations and practices to manage them (in most places). When lending goes online it can dramatically increase access for both borrowers and investors, but principal-agent problems don't go away. (That's a report from the US Treasury Dept., but it's good! You should read it!) That's the sub-text of the downfall of Lending Club, perhaps the largest of the online lending "platforms" that have emerged in the US in recent years. This week the CEO was forced to resign after it emerged that he had approved misleading investors about how the company was managing some of those principal-agent problems in ways reminiscent of the sub-prime crisis.
2. Unexpected Regulators: Speaking of online lending and regulation, this week Google became a de facto financial services regulator by banning ads for online payday lenders. Perhaps that was in response to this unexpected regulator using Google to make terms and conditions of online payday lenders more transparent. Meanwhile, if you still need quick access to cash online, you may want to study more about the rules enforced by Reddit's volunteer lending regulators.
3. Savings: But perhaps you take a more conservative approach to building up lump sums: saving. If so, you won't have much company in the United States. But you'll also be pretty lonely in Korea (10,000 Won is less than $10USD). And in Japan. Time for me to update my priors about savings rates in Asia.
Read More1. Affordable Housing and Cities: The rising cost of housing is pushing lower income households out of US cities with the most job growth. Trulia, an online real estate information something or other, documents which US cities lower-income households are fleeing fastest. That's a perverse way to get the benefits that a higher proportion of economically stable households brings to cities.
2. Inequality: The new issue of the Journal of Economic Perspectives has a special section on inequality. Attanasio and Pistaferri consider consumption inequality vs. income inequality. Currie and Schwandt find that while mortality at age 40 and 50 has been falling more slowly in poorer counties in the US, mortality of children has been falling more quickly in poorer counties, reducing inequality. Mortality reductions have been especially large among African American men from 1990 to 2010.
Read More1. Children are the Future: The NY Times has a new data set and visualization on socioeconomic status and school achievement in the US. But it’s not just in poor neighborhoods in the US that children aren’t learning. The failure to measure learning in global education policy is a big problem. Of course, surviving to school age is the first step. Chen, et. al. look at why infant mortality is higher in the US than Europe (hint: mothers in poverty) and Amarante et. al. see cash transfers to such poor pregnant women leads to higher birth weight babies (which are less likely to die) in Uruguay. But perhaps the cash grants shouldn’t stop during pregnancy. Russ Whitehurst at Brookings argues that cash support to families has a bigger impact on learning outcomes than early childhood education programs.
2. Basic Income: Speaking of cash grants, basic income is apparently the story of the moment. FiveThirtyEight provides a pretty comprehensive overview, including upcoming experiments in Kenya, the Netherlands and Finland and a look back at the NIT experiments (which helped launch the modern era of RCTs). Meanwhile, Michael Strain at AEI thinks basic income is unworkable in practice and we’ll just end up back where we started.
Read More1. (American) Household Finance: The new issue of the Atlantic is all about Americans' finances. Some choice bits: Derek Thompson on why Americans (and many others) stopped saving; Bethany McLean on what comes after payday lending; and Neal Gabler on how he came to be one of the many American households who cannot come up with $400 for an emergency. And while we're at it, Esquire talks to 4 men with very different incomes about spending, saving and taxes.
2. (Healthcare) Household Finance: A new paper looks at how the Affordable Care Act has affected household finances and finds that access to insurance through Medicaid expansion reduced debt and collections for the poorest households. NBER
Read More1. Our Algorithmic Overlords: How will digital financial services, and the data that flows from them, affect our daily lives? It depends. Big data, combined with the low marginal cost of extending digital services can be used to dramatically expand access to quality financial services. But they can also be used to discriminate against the poor, empower dictators, punish political enemies and limit economic mobility. In other words, algorithms and the people that write them matter.
2. Digital Trust: Obviously a key factor in the reach of mobile money is trust. IMTFI has a new synthesis of studies examining how trust in mobile money systems is built or squandered, while the Helix Institute has thoughts on trends in mobile money fraud (the most prevalent and serious of which involve people with access to the algorithms) IMTFI and Helix Institute
Read More1. Poorest of the Poor: There's new data from the Bangladesh "graduation model" evaluation that provided livestock and training to very poor women. After three years, results were strikingly positive. Now there's a 7 year follow-up that suggests those gains hold for the long-term and may even continue to increase--importantly with no evidence of negative spillovers and some evidence of positive spillovers to others in the village. Development Impact
2. Debt vs Savings: If you get an influx of cash, should you pay down debt or build up savings? It's a hard question to answer. Allison Schrager argues that paying down debt is conventional wisdom (is it?) but that saving is better than paying down low-interest, long-term debt for millennials. Of course, by rough calculation only 30% of millennials have such debt while the average American household carries $15,000+ of credit card debt. Quartz
3. Efficient Markets: Omar Al-Ubaydli and John List review the findings of field experiments on markets, finding that while there are behavioral quirks that limit market efficiency, many of those quirks disappear when participants have the chance to learn. A useful reminder when thinking about the use of nudges and the application of behavioral economics. NBER
Read More1. Income Volatility: Churn in health insurance coverage imposes a lot of costs on individuals, administrators and providers. Dhruv Khullar illustrates howincome volatility is a major driver of churn and suggests some ideas for reducing the impact of income volatility on health insurance coverage. NYT
2. Digital Inclusion (or not): Direct digital payments to poor households can theoretically be a tool for financial inclusion, but not if the programs turn those households off. Silvia Baur and Jamie Zimmerman review risks in digital payments programs that can limit their effect on inclusion. CGAP
Read More1. Financial Diaries: Similar to the findings of the US Financial Diaries, the newly released results from the Mexican Financial Diaries report many families struggling with income volatility, even with employment opportunities. Households struggled to match income and expenses despite working an average of 7.3 different jobs per family. CFI
2. Savings: "The intriguing finding remains. Perhaps savings accounts don’t enable people to earn more, they inspire them to earn more." NextBillion
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