Monday, July 31, 2006

Lazy philanthropy

Arnold Kling points to an article by Abhijit Vinayak Banerjee of MIT in which he argues that its time to think systematically hard about what works when providing aid to developing countries.

A politicized free-for-all transfers money from projects that have been shown to work to those that are merely plausible.

The book, called Empowerment and Poverty Reduction: A Sourcebook, was meant to be a catalogue of the most effective strategies for poverty reduction, brought together to give potential donors a sense of the current best practice. It contains a very long list of recommended initiatives, including computer kiosks for villages; cell phones for rural areas; scholarships for girls attending secondary school; school-voucher programs for poor children; joint forest-management programs; water-users groups; citizen report cards for public services; participatory poverty assessments; Internet access for tiny firms; land titling; legal reform; micro-credit based on group lending; and many others. While many of these are surely good ideas, the authors of the book do not tell us how they know that they work.

And then

Indeed, there is reason to suspect that the authors of the sourcebook were not even looking at their own evidence. My favorite example is the description of the Gyandoot program in Madhya Pradesh, India, which provided computer kiosks in rural areas. The sourcebook acknowledged that this project was hit hard by lack of electricity and poor connectivity and that “currently only a few of the Kiosks have proved to be commercially viable.” It then goes on to say, without apparent irony, “Following the success of the initiative . . .”

Here is where randomized trials and natural experiments come to the rescue.

Primary education, and particularly the question of how to get more children to attend primary school, provides a fine test case because a number of the standard strategies have been subject to randomized evaluations. The cheapest strategy for getting children to spend more time in school, by some distance, turns out to be giving them deworming medicine so that they are sick less often. The cost, by this method, of getting one more child to attend primary school for a year is $3.25. The most expensive strategy among those that are frequently recommended (for example by the World Bank, which also recommends deworming) is a conditional cash-transfer program, such as Progresa in Mexico, where the mother gets extra welfare payments if her children go to school. This costs about $6,000 per additional child per year, mainly because most of the mothers who benefit from it would have sent their children to school even if there were no such incentive. This is a difference of more than 1,800 times.

Tyler Cowen points to responses by Angus Deaton, Nicholas Stern, and Jagdish Bhagwati.

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