UBS Center Newsletter December 2017

5 / 12

5
Poor Economics
Esther Duflo (MIT) and Abhijit V. Banerjee (MIT)
visited the University of Zurich to share the lessons
they learned after publishing Poor Economics.
Their famous book Poor Economics: A radical re-
thinking of the way to fight global poverty, published
in 2011, is radical in its rethinking of the economics
of poverty, but also entirely practical in the sugges-
tions it offers. On September 21, more than 400
people attended Banerjee’s and Duflo’s lecture where
they shared new insights from numerous research
projects conducted all around the world.
Perhaps the main message of Poor Economics is that
the world constantly teaches us about how to do good
economics, said Banerjee in his opening statement.
But both the message and the messenger may not be
the ones we expect. As economists, we often close our
minds to the world, he continued. We do not listen to
the messenger and we do not hear the messages that
are out there.
To be surprised, you need to start with predictions.
Therefore, Duflo and Banerjee went out on a limb on
various issues based on their interpretation of the
available evidence. Time showed that they got some
right and some wrong. One example, where their
assumption turned out to be wrong, was a project on
food demand. They predicted that it would be diffi-
cult to improve nutrition through the traditional food
subsidy because these programs end up as income
subsidy programs for most households. Furthermore,
the income elasticity of nutrition is quite low, even for
very poor people facing significant undernutrition,
Banerjee explained. However, through programs like
asset and cash transfers in different countries, re-
searchers have found income elasticities of demand
for food that are higher than most previous non-
experimental estimates. It appears that, as poor
people get more money, they do eat more, sometimes
even more than proportionally.
Professor Banerjee presented another example where
they did a project on microcredits. In this case, most
Dialogue and Events
Opinions
of their assumptions turned out to be right. Contrary
to the popular belief that microcredits are the “mira-
cle of microfinance,” Banerjee and Duflo predicted
that – with or without microfinance – most people
would not voluntarily adopt the entrepreneurship
route out of poverty. Many studies and meta-analyses
confirmed their assumption that microfinance mostly
pays for consumption and does not make the poor
any richer. This finding was not well received by the
advocates of microcredits, even though Banerjee and
Duflo tried to make clear that the concept is not
useless in general, but only of use to a small group of
people with entrepreneurial disposition.
Esther Duflo continued by asking her fellow econo-
mists to be more like plumbers. By plumbing, she
refers to the details of public policy – not necessarily
guided by deep principle – that are often ignored both
by academics and by policy makers and left to “tech-
nicians.” These details are exactly what policy makers
need and lack in guidance for the implementation of
policy measurements. Thus, it is exactly what re-
searchers should focus on, she concluded.
They have dedicated themselves to reduce poverty
around the globe. To this end, Esther Duflo and
Abhijit V. Banerjee founded J-PAL – the Abdul
Latif Jameel Poverty Action Lab at MIT – together
with Sendhil Mullainathan in 2003. Their mission
is to reduce poverty by ensuring that policy is
informed by scientific evidence. They do this
through research, policy outreach, and training
across six regional offices worldwide.
Watch the lecture on YouTube:
“If you try to listen, the world
will surprise you.”