Robert Allen’s recent AER paper on “Absolute Poverty: When Necessity Displaces Desire” is a fascinating read, on many levels. The paper uses linear programming (LP) to compute (four variants of) least-cost diets for twenty countries, using prices from the International Comparisons Project (ICP) microdata. To the resulting least-cost food budgets, estimates of non-food costs covering housing, fuel, lighting, clothing and soap are added, generating “basic need poverty lines” (BNPL) for each country.
Online pundits, hurried journalists and policymakers love precision. They crave numbers. Preferably exact numbers; ranges suggest uncertainty and make them anxious. As a result, they will love the World Poverty Clock (WPC), a new website that claims to track progress towards ending global poverty in real time (see also this blog and Financial Times article). The website tells you that 632,470,507 people are currently living in extreme poverty - or were, on December 6 at 10:00am… Even more amazingly, the site claims to forecast poverty at any point in the future until 2030, the deadline for the UN’s Sustainable Development Goals. By scrolling along the elegant timeline on the bottom of the WPC screen you will learn, for example, that in 2028, 459,309,506 people will be living in extreme poverty!
As behavioral scientists to the World Bank, we at the Mind, Behavior, and Development (eMBeD) Unit tend to see behavioral science everywhere. With the holiday season fast approaching, it’s no surprise that we can apply behavioral science to any number of seasonally appropriate channels, including charitable giving. Reciprocity, it turns out, affects us at every age, and can be a good lesson for charitable giving campaigns.
You could say that the first one began in 2009, when the US government recruited Cass Sunstein to head The Office of Information and Regulatory Affairs (OIRA) to streamline regulations. In 2010, the UK established the first Behavioural Insights Unit (BIT) on a trial basis, under the Cabinet Office. Other countries followed suit, including the US, Australia, Canada, Netherlands, and Germany. Shortly after, countries such as India, Indonesia, Peru, Singapore, and many others started exploring the application of behavioral insights to their policies and programs. International institutions such as the World Bank, UN agencies, OECD, and EU have also established behavioral insights units to support their programs. And just this month, the Sustainable Energy Authority of Ireland launched its own Behavioral Economics Unit.
The last quarter century saw remarkable progress against extreme poverty, globally. Between 1990 and 2013, the percentage of the world’s population living at or under $1.90/day fell from 35.3% to 10.7% - that is, from more than one in three people to approximately one in ten, planet-wide. Even in the shorter period between 2002 and 2013, the reduction was from 25.8% to 10.7%, meaning that about 850 million people moved out of extreme poverty during that decade alone.
Is poverty absolute or relative? When we think of (one-dimensional) income poverty, should we define the threshold that separates the poor from the non-poor as the cost of purchasing a fixed basket of goods and services that allows people to meet their basic needs? Or should we instead think of it as relative deprivation: as earning or consuming less than some given proportion of the country’s average living standard?
Could a parent’s decision to vaccinate a child depend on a free bag of lentils? The premise seems implausible:immunization can be a matter of life and death, and a bag of lentils is worth only a dollar. Yet a randomized controlled trial in India showed that a gift to parents of a 1 kg bag of lentils and a set of plates can dramatically raise the percentage of children protected against major disease (Banerjee et al. 2010). Providing a quality immunization camp alone increased the percentage of fully immunized children from 6% to 18%. The addition of the lentil and plate ‘incentives’ raised the figure to a whopping 39%. How can we explain the outsize effect of a gift of everyday household items?
Monday’s announcement of the 2017 Nobel Prize for economics, to Richard Thaler, for his groundbreaking work incorporating psychology into economic theory, was a victory not only for the University of Chicago Professor and co-author of Nudge: Improving Decisions about Health, Wealth, and Happiness, but for behaviorally-informed policy worldwide.
Equality of opportunity is a popular policy objective around the world. It is deeply embodied in the American Dream and has resonated with politicians ranging from Margaret Thatcher to Nelson Mandela. It is also connected to the World Bank’s goal of shared prosperity; individuals with low opportunities should have a chance of growing and prospering in life.