Economics Nobel 2019: why Banerjee, Duflo and Kremer won

Economics Nobel 2019: why Banerjee, Duflo and Kremer won

Arnab Bhattacharjee, Heriot-Watt University and Mark Schaffer, Heriot-Watt University

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2019 (commonly known as the Nobel Prize for Economics) has been awarded to Abhijit Banerjee, Esther Duflo and Michael Kremer “for their experimental approach to alleviating global poverty”. Through the award, the Nobel committee recognised both the significance of development economics in the world today and the innovative approaches developed by these three economists.

Global poverty continues to be a massive challenge. The award follows Angus Deaton, who received it in 2015 for his contributions to development economics – the field that studies the causes of global poverty and how best to combat it – particularly, his emphasis on people’s consumption choices and the measurement of well-being, especially the well-being of the poor.

Well-developed theory can highlight what causes poverty and, based on this, suggest policies to combat it. But it cannot tell us exactly how powerful specific policy measures will be in practice. This is precisely where the contributions of Banerjee, Duflo and Kremer lie. The Nobel citation gives several examples of their impact, including how their research has helped education, health and access to credit for many in the developing world, most famously in India and Kenya.

Consider, for example, child mortality and health – issues of immense significance in the developing world. Theory can tell us that women’s empowerment is important for child health and mortality outcomes, but cannot tell us which policy will be most effective in combating this. It could be a focus on educating mothers, or access to healthcare, or electoral representation, or marital age legislation.

Perhaps, more importantly, theory cannot tell us how large and significant the impact will be of these various policies. And this is where the significance of the Nobel Prize this year comes in.

A new, experimental approach

The fundamental contribution of Banerjee, Duflo and Kremer was to develop an experimental approach to development economics. They built a scientific framework and used hard data to identify causes of poverty, estimate the effects of different policies and then evaluate their cost effectiveness. Specifically, they developed randomised control trials (RCTs) to do this. They used these to study different policies in action and to promote those that were most effective.

Starting in the mid-1990s, Kremer and co-authors started a series of RCTs on schooling in Kenya, designing field experiments to evaluate the impact of specific policies on improving outcomes. This approach was revolutionary. The experiments showed that neither more textbooks nor free school meals made any real difference to learning outcomes. Instead, it was the way that teaching was carried out that was the biggest factor.

Studies by Banerjee and Duflo, often together with Kremer and others, followed. They initially focused on education, and then expanded into other areas, including health, credit and agriculture.

Banerjee and Duflo were able to use these studies to explain why some businesses and people in less developed countries do not take advantage of the best available technologies. They highlighted the significance of market imperfections and government failures. By devising policies to specifically address the root of problems, they have helped make possible real contributions to alleviating poverty in these countries.

Banerjee, Duflo and Kremer also took significant steps towards applying specific findings to different contexts. This brought economic theories of incentives closer to direct application, fundamentally transforming the practice of development economics, by using practical, verifiable and quantitative knowledge to isolate causes of poverty and to devise adequate policy based on behavioural responses.

The impact of these developments upon real world development outcomes are immensely significant. Their work, and substantial amounts of research that followed it, established evidence on fighting poverty in many developing countries. And they are continuously expanding their horizon of contributions, which now also includes climate and environmental policy, social networks and cognitive science.

Diversity issues

The 2019 Nobel Prize for Economics is also significant for reasons of inclusivity. The impact generated by Banerjee, Duflo and Kremer’s approach has come about very quickly – actually, in less than two decades. This explains why, at the age of 47, Duflo is the youngest-ever recipient of the economics Nobel. She is also only the second woman to be awarded the prize (after Elinor Ostrom in 2009). Banerjee, who is also her husband, is the third ever non-white recipient (after Arthur Lewis in 1979 and Amartya Sen in 1998).

In a recent issue of the journal Nature, Göran Hansson, head of the Royal Swedish Academy of Sciences that awards the Nobel, highlighted measures to address the imbalance in gender and ethnicity among winners. He said “we are making sure to elect women to the academy” from which the prize-awarding committees for the chemistry, physics and economics Nobels are drawn.

The pipeline to this achievement is important. The first woman to win the John Bates Clark Medal for top economists under 40, an important indicator of who will be awarded the economics Nobel in the future, Susan Athey, only did so in 2007. Esther Duflo was the second winner in 2010. Since then, women winners of the Clark medal have been more frequent. Of course, award decisions are made strictly on significance of contributions. But, based on this evidence, perhaps Athey, Amy Finkelstein (who won the medal in 2012) and Emi Nakamura (who won it in 2019) will not be far behind.

Arnab Bhattacharjee, Professor of Economics, Heriot-Watt University and Mark Schaffer, Professor of Economics, Heriot-Watt University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Libra: Facebook’s cryptocurrency will not help the billions of people currently excluded from banks

Libra: Facebook’s cryptocurrency will not help the billions of people currently excluded from banks

‘It’ll never catch on!’
NIKS ADS
 

Kamini Gupta, King’s College London

When Facebook unveiled its new digital currency libra, it explicitly said the initiative was intended to address the problems faced by the world’s unbanked: the 1.7 billion people without a bank account. As well as facing inconvenience, these people generally pay over the odds for financial services like bank transfers or overdrafts.

This is a pretty big potential market for Facebook so it’s not surprising that it would target the opportunity. But could libra really transform access to financial services for those who are currently excluded? There are reasons to raise serious doubts.

Across the world, the main reasons people give for not holding a bank account is that they don’t have enough money, don’t see the need for an account, find it too expensive, or another family member already has one. Not having the right documentation is also a barrier, as is distrust in the financial system.

Mo’ money mo’ problems.
Zilverlight

But the specific barriers to financial inclusion vary significantly by region and are usually a combination of social and economic factors. For instance, while cost is a big barrier in Latin America, lack of documentation is the big issue in Zimbabwe and Philippines.

This makes it difficult for any one intervention to be a solution to this huge group of people. Worryingly, the Facebook “white paper” that outlines libra does not really engage with these problems or say how it plans to overcome them.

Trust and financial literacy

People’s trust in institutions can be very important in influencing the extent to which they use their services, as I have found from my own work into microfinance, which I have presented at conferences but is yet to be published in an academic journal.

I have found that people are more likely to choose something familiar over something novel. Since libra will be a new currency relying on digital wallets and built on blockchain online ledger technology, it is not short of novelties. Inspiring trust is therefore likely to be a major challenge.

And simply signing someone up to an account – be it a bank account or a digital wallet – is only part of the financial inclusion challenge.

In India, 190m people still do not have bank accounts, but the percentage of the population who do have accounts has steadily increased to 80%. In 2017, however, nearly half of all bank accounts in the country had seen no activity over the whole of the previous year. One of the reasons is financial literacy, which remains low both in India and many other developing countries. Many people in India have said they are simply unaware of the different benefits of a bank account, such as overdraft facilities or credit schemes.

As many as 62% of the world’s unbanked have received only a primary-level education or less, and in poorer countries the proportion is almost certainly going to be higher. Expecting such people to make complex currency conversions into a new virtual currency is asking a lot.

Services rendered.
Riccardo Mayer

In the first place, there is a need for financial literacy measures and initiatives aimed at motivating them to use the services available. Without this additional support, there is a strong risk that Facebook will boast large numbers of sign-ups but very low rates of transactions from the people who are most in need.

Big world

Only a few days since Facebook’s announcement, libra has faced strong pushback from regulators and policymakers around the world. There is much concern about this proposed shift of power from central banks to a private corporation.

But aside from questions about the ethics of data privacy or the creation of a supranational currency, libra faces an important practical question. On the one hand, it is not clear how a model such as libra, where there will presumably be little or no physical presence in many countries, would interact with and adhere to local regulations.

On the other hand, if it does conform to the local standards of each country, it is unclear how it will overcome challenges like signing people up and strict documentation requirements. Will it really be able to serve the unbanked better than local providers who are used to the challenges in that specific market already?

Entrepreneurs and businesses can either start with a problem and think of the best way to solve it; or they can start with a solution and find the biggest and best problem it might solve. I’m not convinced that libra is a good move in either direction. Facebook either has a huge amount of work to do to adapt its solution to fit the problem better, or it needs to redefine the problem that it is trying to fix.The Conversation

Kamini Gupta, Lecturer in International Business and Comparative Management, King’s College London

This article is republished from The Conversation under a Creative Commons license..

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TV streaming titans are locked into a real-life Game of Thrones – here’s a way around this fight to the death

TV streaming titans are locked into a real-life Game of Thrones – here’s a way around this fight to the death

File 20190509 183112 1tzj83.jpg?ixlib=rb 1.1
Let battle commence.
Vitalii Petrushenko

Michael Wade, IMD Business School

American retail giant Walmart is becoming the latest challenger to clamber into the ring and take on the reigning TV/movie streaming heavyweights with original material.

At a press conference in New York, Walmart announced a slate of new commissions for its streaming contender, Vudu. Added to the 100,000-plus TV shows and movies already available on the service, viewers can expect the likes of Friends in Strange Places, a travel/comedy series overseen by Queen Latifah; interview documentary strand Turning Point with Randy Jackson; and a series-length reboot of 1983 Michael Keaton comedy Mr Mom.

The new offering is aimed primarily at Middle America, which Walmart feels has been undersold by streaming incumbents like Netflix and Amazon Prime Video. Vudu’s shows will be a vehicle for new interactive advertising going live over the summer which will allow consumers to buy what they see without leaving their sofa. Thanks to its monster customer database, a senior Vudu manager recently described Walmart as the “sleeping giant of the digital entertainment space”.

If so, it’s about to wake up to a very crowded marketplace. It’s only weeks since Apple announced streaming service Apple TV+, which is to combine licensed shows with original programming when it launches worldwide this autumn.

Disney, meanwhile, is following suit with Disney+ in November – initially in the US, then rolling out to other countries next year.

Other existing streamers include Hulu and HBO Now, while Discovery and NBCUniversal are both launching rivals next year as well (click on the table below to make the full details bigger). Between them, these companies are spending many billions of dollars on content. It doesn’t take a seer to predict that a good few will likely fail.

Sizing them up

Among these newer announcements, Apple and Disney look the stronger contenders. Apple has the ready-made platform of a billion devices to promote and deliver its service, while Disney has the richest content portfolio across multiple categories – from video games to live sports to superheroes.

Vudu may have the heft of Walmart behind it, but the content investment is likely to be a fraction of the other two: Apple has said it will spend US$2 billion (£1.5 billion) a year at first, while Disney is spending only $500m on originals, including the likes of three Avengers spin-offs, but the group’s total annual content spend is nearly 50 times bigger. Walmart has not said what Vudu is spending. On the other hand, Vudu’s offering will be mostly free while Disney+ and Apple TV+ will both charge monthly subscriptions.

At any rate, all three are likely to struggle – and the same goes for the other new arrivals. We are heading for a serious case of “subscription fatigue”. When consumers watch free-to-air television, broadcasters take care of the messy process of making deals with content owners, aggregating it and serving it up. As pay-TV operators like Sky or the cable networks started to emerge, consumers had to sometimes choose a package to get a particular channel or programme.

They have been warned.
diy13

But with streaming in future, this experience is going to become more and more frustrating – Where can I find Westworld? Where is Blue Planet these days? – not to mention expensive for anyone tempted by multiple offerings. By building competing services, all these media giants are playing their own Game of Thrones.

The fix

The way forward is clear, but controversial. Apple, Disney, AT&T, NBCUniversal and the other large players should collaborate to create a dominant content platform. Partnering among subscription services would take some of the burden off consumers and make the combined offering more appealing than existing options. Imagine subscribing to a single service to receive access to everything from classic TV and movies to the latest shows. The market can probably handle two or three mega platforms, but not more.

Ironically, Disney already has a ready-made option in its arsenal. Hulu was set up as a joint venture between Disney, NBCUniversal, Fox and WarnerMedia (now owned by AT&T). Yet Hulu’s claim to be a cross-industry platform is getting weaker, not stronger: Fox’s 30% share defaulted to Disney when it was taken over, and AT&T has announced it wants to sell its 10% holding. Hulu may have recently diversified with its recent partnership announcement with music streamer Spotify, but Disney’s new dominance of the service will probably make it a less attractive option for other media companies to buy into than previously.

If media companies collaborated with their streaming services, it would certainly come with antitrust concerns. But unless they evolve into an industry platform soon, the door will open for other players to take the lead – I’m thinking digital giants like Google or Facebook, internet service providers or telecommunications companies.

Many of these players already have a subscription relationship with consumers, so it would be relatively easy for them to bundle video streaming into existing services. Amazon’s shift into the media world is a textbook example of how this could play out.

One service to rule them all.
Metamorworks

It is reminiscent of the early 2000s, in which the record majors built walled gardens around their content only to watch in horror as Apple’s iTunes stole the market from under them with a convenient, cheap and comprehensive option. Spotify then stole it again a few years later. Media companies should also beware the prospect of consumers being driven in larger numbers to illegal or quasi-legal video consolidation services.

There are recent precedents that they could follow of competitive partnering in other industries: BMW and Daimler recently announced they would join forces to build common platforms for ride sharing and electric vehicle charging, among other things, having realised they are stronger together than apart.

The media giants would be well advised to start exploring similar possibilities.
Consumers are already baulking at both the cost of multiple subscription services and the inconvenience of having to keep track of which shows are on which services. The ultimate winner will be the first option that can provide scale and convenience at a reasonable cost. If today’s streaming companies aren’t careful, they will end up on the outside looking in.The Conversation

Michael Wade, Professor of Innovation and Strategy, Cisco Chair in Digital Business Transformation, IMD Business School

This article is republished from The Conversation under a Creative Commons license.

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Valentine’s Day: five ways to ensure your flowers are ethical

Valentine’s Day: five ways to ensure your flowers are ethical

File 20190211 174880 z6fe9h.jpg?ixlib=rb 1.1
Anett / shutterstock

Jill Timms, Coventry University and David Bek, Coventry University

If you take an interest in ethical consumerism and plan to treat someone special this February 14, what dilemmas lie ahead? You might already be conscious of getting child labour and slave-free chocolate, a recycled card, even fair trade gold, and perhaps vintage or conflict-free diamonds if it’s a very special year. But what about your flowers?

This year one of us (Jill Timms) will spend her Valentine’s Day looking at sustainable supply chains in Lake Naivasha, Kenya, where hundreds of flower workers will be recovering from their busiest time of year.

Across the world, 250m rose stems will be produced for the day. Of those exported to the EU, 38% are from Kenya, where flower export values have trebled this decade. Governments in Ethiopia, Tanzania and more recently Uganda and Rwanda, are also pursuing expansion, with flowers now accounting for 10% of East African exports.

That part of the world has a natural abundance of heat and space, and lots of available cheap labour. Flowers could help the regional economy to “bloom”. However, there are significant social and environmental challenges, such as the massive population growth around Lake Naivasha which contributes to pollution and has helped cut the lake’s volume in half.

Our own research project on sustainable flowers focuses on stakeholders from different parts of the supply chain. But you definitely have a role to play here too, and it begins with asking questions of the flowers you buy. Here are our top five:

1. Where are the flowers from?

Geography matters. Some flowers travel by sea, some cargo plane and others in the hold of passenger jets, all with very different carbon footprints. For instance more than 90% of UK flowers are imported, mostly from the Netherlands, although Kenya and Columbia are increasingly important suppliers. Chemical sprays freeze flowers to extend life, and they often travel via the Dutch flower hub. Historically the Netherlands has been the industry powerhouse, but now works hard to retain this in the face of direct supermarket buying, growth in Chinese, East African and South American production, and criticism of the extra “flower miles” involved in transporting via Holland.

So provenance is important, but you may struggle to know this. Flowers are not always labelled, labels don’t always specify origin or may list the Netherlands if bought at auction, and bouquets include flowers from multiple sources. Even when the origin is known, things can still be unclear as sustainability issues vary widely by country and flower.

Of course, very short supply chains are possible for some varieties (the shortest being from your garden, if you have one). But this sort of localised growing does not satisfy the demand for volume, variety and year-round supply, or indeed guarantee sustainability in terms of energy, pesticide use and so on.

2. Have the flowers met any standard of practice?

In response to ethical concerns, “certification” schemes are becoming more common. Yet we find consumers, florists and even wholesalers are often unaware or misunderstand these, with Fairtrade still being the only one with wider recognition.

We are working with bodies including the British Florist Association to educate florists about standards, and wholesalers like Fleurmetz to review how certification can be more visible. You can help by asking your florist if their flowers are certified. If they don’t know, ask to see delivery boxes.

3. Who does your purchase support?

In the UK, about 60% of flowers are bought from supermarkets, with the rest mostly from florists. Supermarkets have their pros and cons. Flowers tend to be better labelled, and they are more likely to cut out the auctions and buy direct from growers, which assures provenance and means they can influence standards. However the supermarkets might not share this information, and their demands on price, volume and the short time from field to market can put inordinate pressure on farms.

In contrast, the demise of the high street, Brexit uncertainty and increased online and supermarket competition, has led to “support your local florist” campaigns. Interestingly, some florists have responded by using sustainability as a selling point.

Certifications can help you support farms that claim good practice, but could your purchase also promote development – a familiar argument for global trade? Of course it depends how it is done. For example, the Ethiopian government attracted lots of foreign investment in flower farming. However, incentives included controversial land use agreements that led to civil unrest in 2016, with several foreign-owned flower farms badly damaged or burnt to the ground.

4. What are your own priorities?

There is always a trade-off. Flowers grown in greenhouses in Holland use enormous amounts of energy, but travel less. Lake Naivasha roses enjoy natural heat and light, but are flown many miles and can be chemically treated to survive. So your priorities need to guide your purchase: environmental issues include carbon footprint, chemical use, ecological degradation and water use; social issues include health and safety standards, gender discrimination, precarious employment and land rights.

Accordingly you might choose locally-grown seasonal or organic flowers, or seek growers who support community development or rights for women workers.

5. What will you do with your flowers?

Eco-florists such as Wild and Wondrous are raising awareness of alternative practices. Take in your own vase to avoid cellophane packaging or ask for reusable and recycled options like StemGem. When presenting your blooms, take inspiration from the #nofloralfoam campaign. Treat your flowers well by refreshing water and trimming, keep them out of heat and sunlight, then recycle as green waste to make their journey worthwhile.

St Valentine’s is a day to express our love, so demonstrate yours for people and planet. The supply chains are complex, but our simple advice is to ask questions.The Conversation

Jill Timms, Senior Lecturer in Strategic Management, Coventry University and David Bek, Reader in Sustainable Economies, Coventry University

This article is republished from The Conversation under a Creative Commons license. Read the original article.