1. News from Rwanda: An evaluation of the use of small-scale household solar panels in Rwanda finds that there are benefits but those are small and diffuse enough that subsidies will be needed to scale adoption. At the conference itself I learned that while 89% of Rwandans are "financially included" only 6% are "adequately served" according to recent FinScope data--a healthy reminder that heavy caveats are required when setting inclusion goals. The next step is to recognize (with a nod to James Scott) that in markets with high "inlcusion," under-served is a strategy not a condition. And while this isn't news about Rwanda, I learned about it in Rwanda: MFO is conducting garment worker financial diaries in southeast Asia which should help us understand a bit more of the difference between Blattman and Dercon's results in Ethiopia and Heath and Mobarak's results in Bangladesh.
2. The Cost of Volatility: One of the common findings from financial diaries work around the world is the prevalence of income volatility, perhaps most surprisingly among US households. In the US Diaries data we see a lot of the volatility coming from variations in amount earned per week in the same job. There are lots of reasons to suspect that volatile schedules and the income volatility that flows from it is bad for households, but how bad? A new field experiment hints that it's really bad. Mas and Pallais randomize wage offers to potential staff for a national call center and find that workers aren't willing to sacrifice pay for a flexible schedule, but are willing to give up 20% of their wage to avoid having a schedule set by the employer with a week's notice.
Week of October 10, 2016
1. Digital Identity: A few weeks ago we featured a paper on the general equilibrium effects of NREGA in India, which depends on a universal ID system. Next Billion takes a look at India's digital ID system and compares it with Pakistan's program.
2. Insurance (Is Hard All Over): When you read about attempts to launch microinsurance programs for developing countries, it can often seem like insurance markets work very well in developed countries. But insurance is hard no matter where you are, and may be getting harder due to climate risks and our human failings in thinking about large but rare risks. Here's a new brief from the Penn Wharton Public Policy Institute looking at how under-insured many American homeowners are and proposing some steps to get those people to buy insurance.
3. Shocks and External Validity: Typically conversations about the external validity of an impact evaluation focus on whether a finding in one place applies to a finding in another place. Here's a new paper by Rosenzweig and Udry looking at external validity issues in the same place but in different times, specifically at how important aggregate shocks can be when impact is likely to vary over time (as with agriculture or schooling). I'm not sure how big a problem not considering time variance is, but it is a good reminder to examine assumptions when applying findings from impact evaluations.
Week of October 3, 2016
1. The End of Cash?: Ken Rogoff has a new(ish) book arguing for the end of paper currency. In the New Yorker, Nathan Heller explores Stockholm, one of the most cashless cities on the planet. The move away from cash in Sweden was strongly influenced by high profile robberies of cash depots, making the insecurity and anonymity (for criminals) of cash much more salient. In Heller's piece, there are a few references to issues of privacy, regulation and insecurity of digital tools, but surprisingly little reference to digital payments in less developed countries, or issues in countries where government is less trusted and less trustworthy than Sweden.
2. Cashless in the USA: The US is a very long way away from cashlessness, but one of the primary mechanisms for movement in that direction is prepaid cards. In the last decade they have become increasingly popular alternatives to bank accounts, and as a mechanism for delivering government benefits like food stamps and unemployment and pay to workers without accounts. The Consumer Financial Protection Bureau has released new regulations for prepaid cards to increase consumer protections and bring prepaid cards more in line with credit cards. The regulations include limited liability for lost or stolen cards and new requirements that cards that allow overdrafts have to evaluate customers' ability to repay.
Week of September 26, 2016
1. Jobs! Jobs! Jobs!: For quite a few years now, my mental model has been that most poor households are "frustrated employees, not frustrated entrepreneurs." In other words, most people aren't held back from their entrepreneurial dreams by lack of access to credit, but they are held back in their dreams of having a job by the lack of jobs. That view is tied heavily to the fact that most microenterprises don't grow at least in part because the owners don't appear to be trying to grow them. This week Chris Blattman and Stefan Dercon released a new working paper about an experiment in Ethiopia where they were able to compare factory jobs to grants for self-employment. They find, among many other details, that those who randomly receive factory employment leave the jobs quickly and those who receive grants for self-employment tended to stay in self-employment and out of the industrial sector. There is a lot going on in this paper so it requires careful reading and some thinking, but it will definitely alter at least my confidence level in my priors.
But the discussion of the new Blattman and Dercon paper revived my memory (hat tips to Rachel Glennerster and Asif Dowla) of this Heath and Mobarak paper on the positive impact of factory work in Bangladesh so there's multiple updating going on for me this week.
2. But Wait, There's More Jobs! Jobs! Jobs!: Karthik Muralidharan and Paul Niehaus have a new paper based off of one of the world's largest RCTs, the roll-out of the new and improved NREGA guaranteed work scheme in India. They find that the program raised incomes of poor households dramatically, but that most of the gains comes from pushing up private sector wage rates, not from income from the program itself. Jonathan Morduch notes that the jump in wages was a factor in the ultra-poor program he studied in Andhra Pradesh not having much impact (many participants left the program to take jobs).
The Muralidharan and Niehaus paper also brings to mind this earlier paper from Breza and Kinnan looking at something similar--how the availability or unavailability of microcredit in India to fund self-employment had generalized effects by altering wage rates. That paper is one of the reasons I believe in the "frustrated employees, not frustrated entrepreneurs" thesis, so now my brain hurts.
Week of September 19, 2016
1. Microfinance Subsidy: Back before there were impact evaluations the heated discussions in microfinance were about costs and subsidies (and business model, which is really a conversation about cost and subsidy). Those conversations have died down as the focus shifted to impact evaluations--appropriately!--but cost and impact are equally important when it comes to policy choices. Cull, Demirguc-Kunt, and (our very own) Morduch have a new paper that does the painstaking work to accurately measure subsidy in microfinance. They find that subsidy is pervasive and long-lasting, but small: meaning the modest impact of microfinance has to be viewed in terms of even more modest cost. I could write the whole faiV this week just on findings from the paper which is another way of saying: read it! Bob Cull has a short overview of the findings here for those with short attention spans, or a day full of meetings.
I have a new paper on "The [positive] Case for Social Investment in Microfinance" that I'm finishing up, and would be interested in feedback. If you'd like to take a look at a draft and provide comments, let me know (by replying to this email).
2. But Wait, There's More Microfinance: While most eyes have been turned to tracking the growth of digital financial services, the microfinance industry in India is growing rapidly again. The industry association reports 60% year-over-year growth, with the majority coming from the large incumbents like SKS and Ujjivan. Apparently the banking correspondent model is playing a significant role in growth. Let me pause for a moment to roll my eyes at the finding that clients say that 94% of loans are for "income generating activities."
Meanwhile, Jonathan Morduch has a review of Lesley Sheratt's new book on achieving an ethical balance in microfinance, a balance that a 60 percent growth rate calls into question.
Week of September 12, 2016
1. Income, Poverty and Volatility: The big news of the week in the US was the release of the US Census Bureau’s report on income, showing strong gains across the board (but best for lower income groups) and the largest drop in the poverty rate since 1999. As always, the story is more complicated than the headline statistics. Annual income measures hide year-to-year and month-to-month volatility. And volatility seems to be rising. That means that even though the poverty rate is falling based on annual income, the number of households that spend part of a year in poverty or bounce in and out of poverty from year to year may be increasing.
Aspen EPIC has a wealth of new materials on the topic of volatility including videos, interviews and blog posts.
2. Measurement: Also prominent in US news was the announcement that Wells Fargo, one of the country’s largest banks, had fired 5300 employees and paid a $185 million fine for creating millions of accounts without customer consent (to hit management metrics). Matt Levine has the most useful reporting on the issues and the problem of measurement, calling it an “evil genie...it grants your wishes, but it takes them just a bit too literally." Case in point, Indian banks have apparently been doing essentially the same thing as Wells Fargo, depositing 1 rupee into dormant accounts, so they don't appear dormant. I won’t miss the opportunity to plug Dan Rozas’ work on the large gap between savings accounts and savings account usage in microfinance banks around the world, not just in India.
Week of August 8, 2016
1. Night of the Living FinLit: I'm increasingly using the persistence of financial literacy programs as a proxy for the "evidence-based" movement. Here's a story about a new $5 million investment in FinLit for low-income youth in Chicago, where apparently half the curricula is devoted to day-trading stocks. Most remarkable is that the story spends its time wringing its hands about the irony of financial services firms funding FinLit, rather than the fact that it doesn't work in any meaningful sense. If the evidence-based movement can't kill FinLit as we know it what hope is there for other policy domains?
2. Priming Zombies: No the zombies aren't doing the priming, nor are they being primed. Here's a new review of studies of the effect of "eyes" on influencing social behavior--it's one of the "neato" findings in the priming literature that became so popular in the last decade. Like recent replications of other priming interventions, the widely reported effects don't stand up. How long will priming hold on as a zombie idea?
Week of August 1, 2016
1. Cash Transfers, Conditions and Fathers: Akresh, de Walque and Kazianga compare the effects of conditional and unconditional cash transfers, and whether they are given to mothers or fathers in 75 villages in southern Burkina Faso. They find conditions matter and that, if anything, children and households benefit more when the father is the recipient. I'm trying really, really hard to fight confirmation bias, and losing.
2. Financial Inclusion and Digital Financial Services: The Bookings Institute has published it's second annual review of progress on financial inclusion and access, with a particular focus on digital financial services. It covers 26 countries reviewing availability, use and the policy/regulatory environment. Kenya and Colombia top the list; Egypt and Ethiopia are bottom.
3. Medicine, Economics, Data and Evidence: The grass is not greener on either side of the fence. A few weeks ago we had Croke, et al's critique of meta-analysis in health research. On the other hand (see what I did there?): "In comparison to medical studies, most economics studies examined do not report important details on study design necessary to assess risk of bias." Meanwhile the medical community is arguing over how and when data from clinical trials should be shared. Larry Husten summarizes the arguments, but be sure to scroll to the end for a discussion of the difficulties of setting up a market for data and whether anyone "owns" the data. I feel like some economists might have something to say about that, perhaps starting with Coase and Ostrom. Though will the market for data end up being a Market for Lemons? And will economists put their data where their mouth is?
Week of July 25, 2016
1. Financial Institution Behavior, Part I: Xavi Gine and Rafe Mazer pull together audit studies of banks conducted in Ghana, Mexico and Peru. You will be shocked, shocked to discover gambling--I mean, failure to disclose true product costs or best-fit and cheapest products--in these establishments.
2. Financial Institution Behavior, Part II: The recovery in home prices in the United States since the housing bubble has left one part of the market untouched: homes with values below $100,000. Banks won't originate loans for mortgages of this size because the fees they can charge are capped below profitable levels, so owners can't refinance or sell. There is a non-profit turned hedge fund that's taking on this market though.
3. Financial Institution Behavior, Part III: OK, so they're not financial institutions, but debt collectors are part of the financial infrastructure. And they've behaved so badly--harassing debtors, pursuing people who don't actually owe the debt, etc.--that they generate more complaints to the CFPB than even payday lenders or frauds. So the CFPB is drafting new rules to govern debt collection.
Week of July 18, 2016
1. Why not What: Chris Blattman posts notes from a recent talk he gave at DfID arguing that focusing too much on "what works?" is a mistake. Via Ryan Briggs on Twitter, here's Angus Deaton's 2010 paper making much the same argument.
2. Why not What, Part II: A new paper from Buera, Kaboski and Shin looks at a host of "well-identified evaluations of the impacts of micro-financial interventions" including the microcredit evaluations, the targeting the ultrapoor programs, and cash grants to try to understand why the results are what they are.
3. American Financial Security (or lack thereof): Americans confidence is their ability to afford retirement is creeping up again, but it's not clear why. A new HSBC study finds that 64% of respondents over age 70 are financially supporting others. Andrew Yarrow writes about "the 45%" who are paid less than $15/hour, are "asset poor" and do not have access to employer-sponsored retirement-savings (note that these are not all the same people).
Week of July 11, 2016
1. Meta-Analysis of Worms: When the dust settled in last year's #wormwars it was clear that a core issue was methodological and interpretive differences between epidemiologists and economists (see Humphrey's section 5). A new meta-analysis of deworming impact studies from Croke, Hicks, Hsu, Kremer and Miguel takes that issue head-on: it's as much an argument about how to evaluate evidence as it is an argument about the evidence on deworming in particular, concluding with, "Under-powered meta-analyses are common in health research..."
2. Police Shootings: Another raging methodological debate on an issue of even greater emotional resonance broke out this week: are African-Americans more likely to be shot by police than whites? Roland Fryer has a new working paper that answers, "No [in some cities, though they are more likely to be physically accosted during a stop]." The initial critical reactions focused primarily on the fact that this is a working paper and not enough emphasis in reporting on the paper was given to the limited context (e.g. only a limited number of cities) of the results. The larger methodological issue though is about how to treat the data in the first place. Michelle Phelps looks at how bias in who gets stopped by police can substantially bias outcomes and puts the findings in context of other research. Radley Balko looks at how the source of the data--police reports--makes it questionable whether the data can be trusted at all.
Week of June 27, 2016
1. LOL Nothing Replicates: Jason Collins looks back over Kahneman's Thinking Fast and Slow post-repligate, finding some distinctly uncomfortable language ("You have no choice but to accept that the major conclusions of these [priming] studies are true"). Meanwhile a new paper in PNAS suggests that fMRI studies have 70% false positive rates.
2. Migration: There's a lot of work to be done understanding intra-household bargaining in the context of migration. A new paper tries to estimate the returns to internal migration in South Africa by looking at the effects on the migrant as well as on the households from which the migrant departs and which the migrant joins. A southern New Zealand town is trying to recruit internal migrants because it has too many jobs. Perhaps they could expand the Tongan lottery. And the New York Times magazine has a long piece on Canada's refugee sponsorship program where you can find this unexpected but lovely statement: "I can't provide refugees fast enough for all the Canadians who want to sponsor them."
3. The Future of Microfinance: Next Billion has a terrific collection of posts on last year's sale of six microfinance banks by Opportunity International to MyBucks, a for-profit fintech firm. Dan Rozas and Gabriela Garcia provide an overview, Chuck Waterfield expresses skepticism that the transaction is good for customers and Vicki Escarra, Opportunity International Global CEO, responds. Anybody else miss the old days when this type of back and forth was common?
Week of June 20, 2016
1. Financial Health: How should a financial services company assess its customers' financial health? Three financial services organizations, HelloWallet, Wells Fargo, and Solutions for Progress, have developed tools and metrics to measure the financial health of their customers. NextBillion
2. Housing Segregation: Housing instability as a repercussion of income volatility has been well documented, but what about the cycle and segregation of poverty in specific neighborhoods? Matthew Desmond's Evicted: Poverty and Profit in the American City and Mitchell Dunier's Ghetto: The Invention of a Place, the History of an Idea take a look at the history and complexity of living in concentrated poverty. The Atlantic Magazine - June 2016 Edition
3. Grit in Developing Countries: Is grit a useful predictor of success in developing economies? Roving Bandit
CBAs: Still A Long Way To Go
BRAC, the world’s largest development NGO, examines the limitations of Cost Benefit Analyses and how to improve research methodologies for more informed policy and investment decisions.
In the last ten years, we have seen a push from investors, foundations, governments and concerned citizens for better impact evaluations to prove which development programs work consistently across contexts, with sustained outcomes over time.
Week of June 13, 2016
1. State of Economics Laureates: Video from the World Bank's "State of Economics, State of the World" conference is now available. Here's Ken Arrow on equilibrium and welfare, Amartya Sen on social choice, and Joe Stiglitz on information economics. And here's Clark laureate Esther Duflo on the influence RCTs are having on the world. Bonus: blog post from David McKenzie based on his comments on Duflo's presentation examining whether RCTs have taken over development economics. Oh, and the rest of the talks are here.
2. Mobile Money: An in-depth discussion of why little progress has been made on merchant acceptance of mobile money/digital payments and what to do about it. And here's a pretty thorough debunking of the long-lived "fishermen use mobile phones to get market prices" story that helped jumpstart enthusiasm for mobile phones as a poverty-fighting tool.
3. The Way We Bank Now (in the US): Starbucks is a bank (or a prepaid card company) that happens to serve coffee. Meanwhile, the actual banks are earning more from overdraft fees again. The preference for storing money with Starbucks is starting to make more sense.
Week of June 6, 2016
1. Marshmallows: I'm very confused by marshmallows, or at least marshmallow tests. Did you know about the massive attrition in the original work? The fuzzy proposed mechanisms? It's executive control! Trainable mental tricks! Actually it's a measure of trust! No, poor children who choose immediate rewards are calmer and more rational! Did I mention that willpower depletion doesn't replicate (and that physiological measure of calm rationality is suspect)? If the marshmallow test doesn't tell us much, at least there's Grit to rely on. Sigh...
2. The Housing Boom: I'm also newly confused about what was happening in the housing boom. A new working paper from Foote, Loewenstein and Willen shows that low-income borrower mortgage debt didn't increase relative to high-income borrower mortgage debt. Reading that paper I learned thatBhutta earlier found that new home buyers weren't much of a factor during the boom.
3. Consumer Debt: A lot of people are confused about consumer debt, not just housing debt, in the United States. Here's a Slate piece about how to get out of debt which won't tell you anything new if you've ever heard of present bias. Here's a Slate piece from the week before blowing large holes in the "present biased overspending" theory of consumer debt. And remember that link from last week about how behavioral tricks to increase saving still don't yield any increase in poor households ability to save for the long term? One sure fire way to reduce debt is to forgive it--but you might want to acknowledge the source of the idea.
Week of May 30, 2016
1. Basic Income: Basic income's 15 minutes of fame seem to be stretching on. In the New York Times, Eduardo Porter rains on the parade, at least in the US context. Paul Niehaus is still marching anyway: he hosted a Reddit Ask Me Anything about GiveDirectly's basic income experiment in Kenya. Meanwhile, the MacArthur Foundation announced it's going to give $100 million to a single organization to "solve" a social problem. Poor choice of words aside, I can't think of a better use of that money than expanding basic income experiments into other countries.
2. Nigerian Entrepreneurs: We all know about a certain kind of Nigerian grassroots entrepreneur. But there are others. PlanetMoney has a podcast about David McKenzie's experiment in giving large cash grants to winners of a business plan competition. David also has a new paper exploring how well participants in the competition (winners and losers) anticipate the effects of winning the cash grant. Most think the impact of the money will be larger than it is, and their estimates don't help predict who will benefit most from receiving the cash.
3. Payday Lending: The US Consumer Finance Protection Board published its long-anticipated proposed regulations for the payday lending industry. Reaction is mixed with some praising the step forward and others suggesting the regulations don't go far enough. It's a tough issue--there are a lot of bad products out there but making credit constraints more binding for the poor isn't great. Here's a reminder about how costly illiquidity is for poor households, even when they don't borrow. CFSI has a look at the demand for small-dollar, short-term credit. And here are the stories of two households from the US Financial Diaries, and how short-term credit can help and hurt.
Week of May 23, 2016
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.
Week of May 16, 2016
1. 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.
Week of May 9, 2016
1. 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.