This is Bayan Misaghi's Typepad Profile.
Join Typepad and start following Bayan Misaghi's activity
Join Now!
Already a member? Sign In
Bayan Misaghi
Recent Activity
The Biel et al. (2011) paper presents a version of the endowment effect with public goods. Rather than looking at the difference between willingness to pay for a commodity and the willingness to accept for the same commodity, this paper focuses on the “emotional and moral costs” associated with the choice of donating money to a cause (in this case, the WWF). The study shows that for individuals who were expecting to have some of their compensation for participating in the experiment donated to the WWF (the WTA group), there are statistically more participants who are willing to donate compared to the WTP group. Expectation, in my opinion, is what is driving the discrepancy: the WTA group has already done the mental calculus necessary to only allocate 50 SEK to their “endowment” whereas the WTP expected the full 150 SEK. This expectation idea is reminiscent of what we discussed earlier in class: the dopamine expectation and reward pathways. The question of why the WTA group donated significantly more than the WTP group is a good one and the researchers, I think, do a pretty good job investigating some of the obvious reasons that we might think about. That said, I would have been interested to see the effects on donating given different parameters. The researchers only allow a donation of 100 SEK or nothing. What happens if we allow the individuals to donate in increments of 50 SEK or 10 SEK? Also, I would have been interested to see if the reason some people decided not to donate was because they didn’t like the WWF. Obviously there are a lot of practical applications for the conclusions associated with this study. In a “charity” scenario, the “fundraiser” should always make the default for the “donator” to give the greatest amount possible. We mentioned this in class with regards to organ donation: when the default is to be an organ donor, significantly more people end up registering as organ donors than when the default is not to be a donor.
Toggle Commented Nov 20, 2014 on Econ 398 Papers at Jolly Green General
I enjoyed reading this paper especially since I’ve begun reading Dan Kahneman’s Thinking, Fast and Slow. Wilson highlights the decision making process using the Dual Process Theory: how affect and emotion influence the analytic system that we use to make decisions. Affect is clearly the “thinking fast” part of the decision making process since it is the instantaneous reaction one has to a stimulus. I think the emotion part is a bit trickier to clearly categorize as being “fast” or “slow” thinking given that individuals may come into a situation in an emotional state that may or may not even be relevant with the decision to be made. Wilso writes that emotion refers to “consciously accessible feelings,” and that “they help interpret and summarize complex information, motivate individuals to action, and reveal potential value conflicts,” but I’m wondering what the effect of emotion is on affect and how other studies have gone about testing this. Experiment 1 was quite interesting. Subjects essentially admitted to either being hypocritical or illogical in how they allocated their resources based on their stated conservation objectives / concerns. I think that it’s relatively easier to empathize with the subjects in Experiment 2 who ignored the decision-relevant risk information and allocated more resources to solving the affect-rich problem because of all of the baggage surrounding crime, petty or otherwise. Experiment 1 though was really surprising to me because I thought individuals would be able to remove themselves with the affect-rich issue of disease since its only directly affecting wildlife instead of other humans. I’m interested in whether or not the experimenters controlled for perceived costs of solving the issue presented. I could imagine a scenario where subjects would assume that solving a wildlife disease issue would be much more costly than solving deer overpopulation. The former may require lots of expensive R&D while the latter would require an extra week in deer hunting season. A final thought I had was with respect to Figure 2. In class we talked about how humans tend to be optimistic about their luck / skills; that is to say, individuals believe that they are above average. This is why in a development setting we see individuals flocking to the city even though the unemployment rate is high: individuals think they can beat the odds and land a job because they assess themselves (oftentimes incorrectly) as being above average in luck / skills. Figure 2 alludes to this, but in emotional intelligence paradigm. I find it funny that individuals find now statistical difference between how they value their own loss and a family member’s loss, but think that their loss as valued by a family member is significantly lower. The same is true in valuing a stranger’s loss compared to how a stranger values the individual’s loss. My interpretation: this basically says that on average individuals think that they are more empathetic towards others than others are towards them.
Toggle Commented Nov 11, 2014 on Econ 398 for Tuesday at Jolly Green General
This was a great summary of what we have learned and discussed so far along with a discussion of how far the discipline has yet to go in order to sort things out. In explaining integral emotions, the article alludes to the fact that individuals have virtually no idea what their tastes and preferences are until they are faced with a decision that they have to make. Dan Molon mentioned this in his “malleability of people’s tastes and preferences” comment. And the article describes several studies that show that decisions are oftentimes made “illogically” (e.g. paying more for only “terrorist” insurance rather than “any reason” insurance), perhaps because the individual is unable to even imagine potential scenarios or full identify his/her own tastes and preferences. The integral emotion paradigm basically flips utility theory on its head. Rather than assuming an individual comes into a decision a priori with static tastes and preferences (how a typical microeconomic theory course is taught), perhaps economists should think about the decision event itself dictating and revealing an individual’s tastes and preferences. Of course, this is the goal of countless studies: revealing an individual’s normative preferences. However, classical studies may not take into consideration framing, hyperbolic discounting, the endowment effect, etc. Comparing the pleasure-pain paradigm (Relaxing the Assumption That Utility is Strictly Defined over Realized Outcomes) and the hyperbolic time discounting (Relaxing the Assumption of Exponential Discounting) was perhaps most interesting to me. Individuals were willing to pay more to experience delayed pleasure (e.g. kissing a celebrity) yet would choose a $10 Amazon gift certificate today over a $15 Amazon gift certificate tomorrow. I find this to be contradictory. Given hyperbolic discounting, I would expect that in both cases individuals would choose to be rewarded sooner rather than later—especially in the first case, since the individual is only being rewarded with one kiss whether it is 1 minute from now or 1 year from now. I hope that we can discuss why both of these phenomena are observed.
Toggle Commented Nov 4, 2014 on Econ 398 for Tuesday at Jolly Green General
I found Adam Smith’s Preferences and Dual Perspectives insights fascinating, if not eerily prophetic. Smith’s writings are hypotheses that have since been supported over the last several decades with regards to how human behavior affects decision-making. The Loss Aversion section, in my opinion, is closely related to the Endowment Effect. The authors mention that investors may be reluctant to sell assets losing value and large gaps between buying and selling prices. This might be because the investors are afraid of missing out on future returns (Loss Aversion) and/or because the agents actually feel like their assets are worth more now that they own it (Endowment Effect). That said, the agents involved in these scenarios might also be overconfident in their abilities; for example, in forecasting the terminal value of a stock price. So it’s difficult, if not impossible, to pin down precisely the reasons for these phenomena. I have a question with regards to the Endowment Effect: if we consider a good (e.g. coffee mug), would a reason for the Endowment Effect be that individuals require a certain return for warehousing risk? For example, if an individual pays $5 for the mug and a week later is willing to sell it for no less than $7, does the $2 spread represent the premium the individual wishes to receive for making sure the mug didn’t crack, that it wasn’t lost, etc.? Or is it because of something else? The Intertemporal Choice segment was also very interesting. I’m reminded of a lecture by David Laibson at Harvard that I sat in on a few years ago (the lecture has since been updated and posted in the public domain: Laibson highlighted studies that demonstrate that people have high expectations for the choices, tastes, and preferences their future selves make and have, but are seeking to maximize utility in the present with little-to-no regard for their future selves. For example, the Read and van Leeuwen (1998) study shows individuals choosing a healthy snack for themselves in the future (i.e. fruit), but choosing an unhealthy one in the present (i.e. chocolate). The Akerlof (1991) and O’Donoghue and Rabin (1998) studies demonstrate that most people shouldn’t join a gym because even if they have the best intentions when signing up since their plans to workout frequently are likely to fall through. Laibson speaks about how, for a given scenario, individuals tend to project costs as being significantly smaller in the future than they are when presented in the present. Smith alludes to this when he says “The pleasure which we are to enjoy ten years hence, interests us so little in comparison with that which we may enjoy to-day.” In short, even after acknowledging the long-term health benefits of and desires to cutting back on sugar and going to the gym regularly, individuals tend to be much more shortsighted.
Toggle Commented Sep 15, 2014 on 398 reading for Tuesday at Jolly Green General
Toman’s Climate Change Risks and Policies: An Overview Bayan Misaghi, Kingsley Mooney, Matt Ziemer, Mary Benjamin Though “Climate Change Risks and Policies: An Overview” had its most recent revision over a decade ago, the framework for thinking about possible solutions to controlling greenhouse gases are more relevant than ever. Toman starts his paper outlining the treaties and disagreements of the 1990s, pointing out that documents like Article 2 of the United Nations Framework Convention on Climate Change were written ambiguously, leaving terms like “dangerous” up for interpretation. Furthermore, Articles 3 and 4 give potential solutions such as mitigating climate change through financial support and low-emission technologies, but again they failed to include targets for greenhouse gas reduction in developing countries and focus solely on Annex I countries. Granted, this is hardly surprising since nations are prone to naturally resisting change, but it is concerning considering the large and rapidly growing population of India and some nations in Africa, and the rise from poverty of hundreds of millions of individuals in China. The paper goes on to present a six-step decision framework about how the United States and the world can implement effective policies to reduce carbon emissions. They are: Think comprehensively about risks; Think long term; Address adaptation; Think internationally; Keep distributional issues in mind; Estimate control costs comprehensively and realistically. These six policies were not formally modeled by Toman, but one can think about what types of analysis would be required to develop and forecast effective policies. Toman warns us though that there is no silver bullet; in fact, even with the right policies, the climate will probably still get worse, though at a much slower rate. Because the atmosphere is a public good, the problem is truly international: both the developed and developing world need to develop policies that would reduce global emissions. This clearly leads to the problem of cooperation: with the proper enforcement of international treaties, there is incentive for countries to cheat resulting in a Nash equilibrium where nations continue to pollute at an unsustainable rate. Toman uses the “think internationally” point to address this. Because energy use is strongly coupled with economic growth, we can see why both developing and developed countries might be incentivized to only agree to protocols that are within an easy reach for them. We can use game theory to model this and then use cost-benefit analysis to estimate the severity of the repercussions a country would need to pay in the case they were caught cheating in order to develop an effective policy. Thinking comprehensively about risks initially requires a cost-benefit analysis in terms of marginal abatement costs and marginal damage functions. At least nominally, we must first consider the market associated with preserving some part of the environment—this is essentially the monetary opportunity cost of the present value of the environmental good. Unfortunately, this is a lot more difficult to calculate with air quality and climate than it would be for a more excludable good like a forest. However, more studies by meteorologists, geologists, climatologists, public health experts, etc. can provide for us the probabilities of certain events occurring and confidence intervals on the number of lives negatively effected from a public health standpoint. For example, Jacobson et al. (2005) provides us the number of dollars saved per gallon if US automobiles were to switch from using petroleum with an average emission rate to Hybrid, Natural gas, Wind, or Coal energy sources. These estimates take into account the decreases in public health costs from people dying or becoming ill, which is an economic benefit to switching. On the other hand, the Jacobson et al. (2005) ignores costs such as the costs to implement these technologies, change infrastructure, etc. Of course, these costs would need to be considered before enforcing a policy that would require all vehicles to switch to an alternative energy source. Another example of a risk associated with climate change would be increased probabilities of natural disaster; therefore, the expected value of the increase in damages these disasters would cause must also be calculated. In a business as usual scenario, we could model these risks as aggregate supply shifting inwards and driving the price level up. The aforementioned only takes into account market-related risks. We must also consider non-market valuation through techniques like contingent valuation, willingness to travel, etc. Certainly with the change in climate utility of nature enthusiasts will decrease, but so will that of the average person. We can see the effects of this in Beijing, for example. The vast amount of air pollution due to coal combustion has resulted in dangerous particulate matter, sulfate, and nitrogen compounds in the air. Though there have been an increase in occurrence of lung cancer (whose cost can more-or-less be calculated using market-related techniques), there is also a decrease in utility for the aggregate population since people may have more trouble breathing, may be spending less time outside than they otherwise would, etc. Walking through the “Think long-term” point Toman brings up, we can potentially model benefits associated with increased investment in environmental protection. In the case of public health, an increase in the air quality may result in greater productivity for a given population and capital stock. This could be modeled as a rotation upward of the production function. Thus, aggregate supply would shift outwards as people are more productive. In a business as usual context, productivity would decrease and aggregate supply would shift left driving the price level up. Again, we must be sure to consider nonmarket related goods as well. If we ignore the negative externalities of climate change and air pollution it is possible that in only a market-sense there would be little or no change, while those that enjoy the goods in a non-market sense would have vast decreases in utility. In the case of air in a business as usual scenario, individuals and firms may continue to use the public good as a receptacle for gaseous waste, but relatively non-market uses of air like hand-gliding or even breathing might suffer tremendously. This would be represented as a shift/rotation inwards of the production possibilities frontier, while keeping the same level of pollution and dramatically decreasing the level of nonmarket uses. In this nonmarket case, consumer surplus of breathing, hand-gliding, etc. decreases. We can also model how harsh enough repercussions might incentivize firms to innovate. Given that the aggregate supply of conventional sources of energy that are high in carbon emissions has shifted left (in the case of a strict environmental policy), we could model the response of firms in terms of their own research and development. Firms would have greater incentive to invest in alternate energy technologies, increasing the productivity function of these technologies. This would cause a shift of the aggregate supply for these alternate energy sources to the right, thus, decreasing the price of these sources and leading to their greater consumption. This blog attempted to address some of the ways we could formally model Toman’s points. The modeling discussed is by no means comprehensive, but may be a starting point for someone attempting to breakdown such a complicated issue.
Toggle Commented Mar 22, 2014 on Paper for Thursday at Jolly Green General
Kingsley Mooney, Matt Ziemer, Mary Beth Benjamin, Bayan Misaghi Our group discussed Casey et al. (2009) “Are tourists willing to pay additional fees to protect corals in Mexico?” In addition to the fees that tourists currently pay to visit and experience Mesoamerican Barrier Reef System, this paper aims to find how much more tourists are willing to pay into a coral trust fund to protect the environment that they are enjoying. The paper uses a contingent valuation method that tried to mitigate hypothetical bias and the “warm glow” effect. The contingent valuation method is controversial because some economists argue that responses in real life do not correspond with stated preferences in surveys—that an individual’s willingness to pay would be much less if they were actually paying. With the inclusion of the idea of “cheap talk” during the survey, however, it might be possible to mitigate this bias. The surveyors include these “cheap talk” lines in their survey to make tourists aware of the potential for bias and to solicit more honest/accurate answers. Controlling for classic variables like age, income, gender, education level, etc. and visitor-specific variables like length of stay, knowledge of the Mesoamerican Barrier Reef System, nationality, etc. the researchers found from their non-parametric results that the average willingness to pay was roughly $42 with a lower-bound estimate (95% confidence) ranging from $36 to $49. The parametric results suggest that tourists would be willing to pay between $20 and $80. With over 5 million visitors passing through Cancun International Airport each year, the economic importance of these results can immediately be seen: between $100 and $400 million could possibly be collected to help preserve the coral reef. Something that is interesting and that we did not discuss in class was some of the reasons tourists gave for not wanting to pay an extra fee. Some already paid entrance and exit fees and said that the Mexican Government should protect the corals even without the extra fee being paid. Others might be more willing to pay a fee to the Mexican Government but did not want to because they did not trust that the Government would use those collected fees properly. Some tourists think it is the businesses responsibility to spend money to protect the coral reef (of course, they did not consider that the extra expense would be passed along to the consumer). Also, there was a group of tourists that did not want to pay an extra fee to protect the corals because they did not think they were causing much harm to the environment. Questions can be raised based purely on these protest bids. For example, if consumers knew that certain snorkeling companies spent money to protect the corals and as a result had higher tour fees would these consumers opt to tour with these companies instead of the cheaper alternatives that do not protect the corals? The question of a consumer choosing a more expensive environmentally friendly company over the alternative might be a more circuitous way to test willingness to pay that would mitigate hypothetical bias. Another potential aspect to investigate is if the “coral fund” were less ambiguous would the consumers be more or less willing to pay the extra fee?
The Chinese development model has been a regular topic of conversation within our class this term, and for good reason. The Beijing Consensus flies in the face of what many traditional Western economists recommend developing economies adopt (the Washington Consensus). As we discussed in class, China was able to employ many of the theoretical growth models through strict control of its economy including physical capital, human capital, and investment in technology (in direct contrast to the laissez-faire philosophy of the Washington Consensus). Though these growth models previously failed in other regions (specifically, Latin America), China has been successful because the government has been able to artificially imbed the assumptions these models make. Ravallion argues in this paper that like Latin America, Africa cannot simply adopt the model China has so successfully employed. Because of Africa’s heterogeneous political structures, corruption, low population density, high population growth rate, etc. it is fundamentally different from China. In other words, there is no one-size-fit-all solution. Ravallion also takes a look at some of the growing pains China has also experienced including rising inequality. China’s Gini index has been growing, signaling rising inequality. Since Africa has historically had a great disparity between rich and poor, a Chinese growth model may arguably cause even more inequality. On the other hand, this inequality may only be a short-term price China must pay for growth; after all, there is the possibility of China following a Kuznet’s Curve-esque projectile. Ravallion also points out that China invested in its human capital and provided incentives for individuals to progress. Investments in health and schooling are poverty mitigating even though they do not necessarily or directly affect an individual’s income. Furthermore, promoting a market economy starting with farmers growing a surplus of crops to keep or sell increases productivity. Ravallion shows how Africa might loosely glean some ideas from China especially in the agricultural context since many of its inhabitants are still farmers.
Toggle Commented Dec 5, 2013 on China and Africa (Econ 280) at Jolly Green General
In high school the AP Environmental Science curriculum uses global climate change as a paradigm to teach students about the world’s ecosystems. It compares our current world to a pre-industrial revolution world to worlds that are warmer. Required reading for my high school’s class was a book called Six Degrees: Our Future on a Hotter Planet, which walks the reader through the successive deterioration of the world one degree Celsius at a time. The class was full of the students one would think of: nature-lovers and activist-types. At the time, I had no idea that I would major in economics in college, but I wish that the theme of our environment as a public endowment / the world’s wealth would have been emphasized. Unfortunately, environmentalists have been stereotyped as people concerned with obscure species at risk of extinction and conservation for the sake of preserving natural beauty. While these may provide different relative levels of utility to individuals across the political spectrum, everyone no matter their ideology uses natural resources and can agree that their utilities would significantly decline if these resources were highly scarce. A pillar to environmentalism is sustainability—the use of environmental resources to ensure robust regrowth/repair and future use—and the idea is finally (over the last 10 years) gaining momentum as the primary marketing tool to promote environmentalism. A prominent branch of the environmentalist movement is actually selfish. It focuses on how to optimize the current and future uses of the environment to promote humanity and development. A world that is 4 degrees warmer as pointed out in this article and in my Environmental Science class would be far from this optimization.
The use of the Keynes “weight” model in understanding decision-making is critical to combatting the notion of the impoverished displaying “irrational” behavior. On Tuesday, the class talked about the reasons why farmers often opt for lower-quality or lower income-yielding crop in exchange for a higher probability that a sufficient quantity of that crop may be harvested. Impoverished farmers are naturally risk-averse because they neither have rainy-day savings nor access to formal insurance; thus, they are less willing to trade a less rewarding and less risky for a chance at a higher return. This paper alludes to how a lack of human capital can discourage farmers from making an investment because it effectively increases the risk of that investment. If a farmer does not know how to plant or take care of trees, the probability of the investment actually helping the farmer decreases; on the other hand, those farmers with more education and expertise will have greater chances to reap the benefits of agroforestry. This may be the reason why so many uneducated farmers choose not to participate in agroforestry—they calculate the probability of failing and compare this to the net present value to see if it’s worth the risk. The data in this paper clearly shows that those farmers who have developed their human capital through education and experience are the ones more likely to take part in agroforestry. Clearly, human capital deepening is important not only for service or industrial jobs, but also for more productive agriculture. The idea that a farmer would not take advantage of a practice in agroforestry with a positive net present value seems irrational at first glance, but when one considers the skills needed to implement that practice we are able to gain greater insights to the complexity of issues in the developing world.
Toggle Commented Nov 14, 2013 on ECON 280 Paper for Thursday at Jolly Green General
The use of children as labor is a clear market failure. It is a failure where the addition of constraints—laws passed and enforced by the government— will yield fewer children working in the fields and more of them going to school. On Tuesday there was a debate in class about how governments limiting the flow of human capital between nations is a detriment to the world markets in general. This excess use of market constraints sits in direct contrast to the child labor issue. In the case of child labor, we are reminded that people are not always the “logical economic agents” that our classical models assume. The lack of laws and enforcement leads to households acting in their best short-run interests rather than their long run interests. Similarly, though fewer immigration laws would be beneficial to the world society, complete anarchy may not be desirable. There is likely a happy medium between a complete government grip on human capital (the immigration problem) and the lack of laws and enforcement surrounding human capital usage (the child labor problem). Another issue we discussed in class was the complex problems of school attendance and effectiveness. Udry mentions that child labor is a function of not only the level of poverty in a household but also the economic cost of not having a child working. The paper describes the trade-off of labor vs. schooling in terms of the income and the substitution effect. In this discussion we learn that if wages for children are sufficiently high and even if the family’s income is not in dire need, children may be pulled from school to take advantage of the short-run returns in the labor market. Udry mentions that encouraging school attendance through subsidies is a way child labor can be reduced—perhaps compensating families for the lost wages may be sufficient to have the children sent to school instead of the fields. Perhaps microfinance may also help. Udry mentions the lack of affordable credit and even the lack of a formal financial market. In class we discussed the use of microcredits less as a means of venturing into completely new businesses and more as a vehicle for consumption smoothing. In the case a families income drops because of an exogenous shock, a microloan may help in keeping children in school rather than using them as a source of short-run income.
Toggle Commented Nov 7, 2013 on Corel Office Document at Jolly Green General
The opening paragraphs of the Sachs and Malaney article are an indication of just how bad malaria is. I am in a genetics class right now, so the fact that the same allele that protects against malaria is the same one that causes sickle cell in in homozygous recessive individuals shows how high the exposure rate is to malaria and that the probability of dying from malaria—a transmittable disease—is significantly greater than 5% (by conservative estimates). The article highlights that malaria is a detriment to human capital and that its eradication would yield not only greater productivity, but also would increase skill levels because more children could stay in school for longer. Furthermore, because of lower mortality rates among children, families would be inclined to have fewer children, allowing for a quantity for quality tradeoff. What surprises me most is the lack of focus on malaria prevention especially since, unlike worms, the affects of malaria are conspicuous. Sachs and Malaney say that less than $100 million USD go towards malaria prevention each year. The returns on other investments and social programs would be geometrically greater with fewer people afflicted by malaria, yet the funds that go to support malaria prevention is only a fraction of the total sum that goes towards other social programs like education. Our discussions in class about the spillover affects—the positive externalities that come with the improvement of human capital—is very relevant to the discourse surrounding malaria prevention and eradication. Probabilities of being infected by the disease fall exponentially with fewer and fewer infected peoples. And the endogenous nature of the relationship between GDP and proportion of the population infected by malaria further shows the “domino effect” in reducing poverty that may occur with reduction of the disease.
Giving the poor an opportunity to increase income by giving a safety net for risk-taking, is the goal of microinsurance. Rainfall insurance was highlighted in this article because its administration costs are low though the affects on farmer behavior can be measured. Farmers were willing to take more risk by planting rain-sensitive, but more profitable crops because they had an insurance policy that would compensate them in the case of drought. The article, however, highlights that microinsurance itself is not enough. The randomized control trials in Ghana, Karlan, Osei-Akoto, and Osei show that the best results come when insurance is combined with a subsidy in the form of capital. Farmers in this group increase spending on chemical inputs by 47% and increased their cultivation area by 22% while making surface their household did not miss meals statistically more than the farming group that only had insurance but no subsidy. This study shows that cheaper insurance is more impactful. But cheaper insurance is also more readily subscribed. Cole et al. (2011) showed that a “lack of available funds” is the most commonly cited reason for farmers to not purchase insurance. Though many farmers claim that they do not need insurance, they will also in the same breath say that droughts are the most significant risk that their agricultural businesses face. Subsidized insurance, thus, seems like an option that would be much higher in demand than the current products offered.
Toggle Commented Oct 24, 2013 on Microfinance (econ 280) at Jolly Green General
I am currently enrolled in Econometrics, Microeconomic Theory, International Trade, and of course, Development Economics: it is a beautiful coincidence that Krugman’s article was assigned as one can clearly see how economic methodology can greatly affect the full swath disciplines within the field. I have also had the chance to take a number of science courses at W&L—including physics (which Krugman describes as having a rigorous and formal methodology)— and I found the juxtaposition of the sterile lab experimentation environment in physics to the messy and incomplete data gathering in economics thought-provoking. The evolution of development economics in terms of its rigor in rigorously developing models in some ways parallels the natural sciences. Sometimes scientists build models that are almost completely metaphorical, and with little math behind them at all. J.J. Thomson proposed what he called the Plum Pudding Model. This was before the discovery of the nucleus, and was completely wrong; yet, it provided context for an invaluable discovery, the electron. Likewise, early development economists spoke in metaphor with questionable legitimacy; yet, they provided the context necessary to uncover valuable insights. Krugman mentions that Rosenstein and Fleming were development theorists that tried to get as close to a formal model as they could, but were unable to model the key idea of economies of scale in their frameworks. This statement reminds me of the renowned quantum physicist, Niels Bohr. Like Rosenstien and Fleming, Bohr attempted to explain a largely unknown and complex system without the ability of integrating key components to his models. The Bohr Model of the atom is only accurate for the hydrogen atom—not atoms with more than one electron. He, nor his contemporaries, could explain how or why his model broke down with multi-electron atoms. Yet, Bohr still won the Nobel Prize in Physics for his contributions to the science—even though his model didn’t work most of the time! Still, some of Bohr’s fundamental theories are the basis for modern quantum theory. Its stories like these in science that should give economists permission to go out on a limb occasionally, to attempt to describe/explain a phenomena while acknowledging that most of the description could be inaccurate, but communicating important themes. Like physics I think that development economics has its bouts (as Krugman implies)—being largely descriptive at first, and then evolving into a more rigorously modeled and quantifiable field.
An undertone of tradition steeps several of the earlier sections in this article. It is intriguing that both the poor and the extremely poor spend greater than 30% of their incomes on events like religious festivals, weddings, and funerals. Spending money on events like these rather than food, basic necessities, assets for the business, etc. indicates at least two things: 1. A commitment to a belief system, superstition, religion, etc. and/or 2. A way to signal wealth. I have family in both India and Tanzania and they have on numerous occasions communicated to me that tradition takes precedent in how families—especially in rural settings— make decisions. Tradition in both countries includes strict adherence to religious ritual and it creates a culture of needlessly flaunting and keeping up with the Jones’s. Traditions like these dictate why even the extremely poor will sacrifice several meals to host a “proper” burial ceremony. Later we read about how the poor earn their money and how individuals will have multiple occupations just to make ends meet. The paper lists three reasons why there is so little specialization, but I am going to suggest another. There is a lack of specialization possibly because the current workforce simply emulates the work habits of the older generation of workers. Even the entrepreneurship of the poor suggests that tradition dictates the lines of work an individual takes. Businesses are owned and operated by only a couple people, and most of them are family businesses. This suggests that parents hand down their businesses and teach their children a set of skills that they are familiar with, not encouraging the acquisition of new and potentially more profitable skills. Furthermore, the fact that the poor are clannish in business—not forming inter-family business partnerships—eliminates the possibility of economies of scale. Lastly, the question of why the poor do not migrate for longer also has to do—at least, indirectly—with tradition and with the social network. The paper says that an individual’s social network at home provides an informal insurance, but then goes on to suggest that an individual’s commitment to family rather than “living alone” is another reason migrant workers return home sooner rather than later. Furthermore, The land on which a family lives is oftentimes the land of several generations of that family. A commitment to this family “heirloom” might also be a reason to return frequently.
Toggle Commented Sep 12, 2013 on Economic Lives of the Poor at Jolly Green General
Bayan Misaghi is now following The Typepad Team
Sep 6, 2013