Randomized control trials and economic models: friends or foes?

Randomized control trial (RTC) studies are getting more and more attention among policymakers in the last few decades. In addition, the RCT is one of the core experimental methodologies used by the recent nobel prize laureates in economics Duflo, Kremer and Banerjee

Given the excitement around these methods, Chicago University has recently run the IGM Economic Experts Panel asking economic experts on whether the “ Randomized control trials are a valuable tool for making significant progress in poverty reduction”. The results of the poll are summarized in the graph below. 

The chart above highlights respondents’ agreement distribution. What struck me most from the results was Angus Deaton’s strong disagreement with the statement – especially given that he is an expert in the field.

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Global income inequality

Via Overcoming Bias I spotted this paper on global income inequality, 1970-2009.  Robin points out to be careful, as this doesn’t capture non-financial inequality, and it doesn’t look at the “lifecycle” of individuals – just snapshots of income dispersion at a point in time.  Of course, these missing bits are due to data limitations, the authors would have known this full well.

It shows the global static income inequality has fallen, especially over the last decade.  Lovely.  However, we only get a small part of the story by looking at that graph – the paper also decomposed changes in the global Gini coefficient into ‘between’, ‘within’, and ‘overlapping’ components.  In fact, this decomposition was really the main purpose of the paper!

So let us talk about these things, talk about what happened with them, and see where that leaves us 🙂

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Was Summers right in saying “pollute the LDCs”?

Back in 1991, Larry Summers upset a lot of people as Chief Economist at the World Bank.  His memo has been viewed as morally reprehensible, was cited in the second chapter of this book as indicative of the way economists ignore moral values, and was used as a key example in a philosophy class I sat in of the untenable nature of economic arguments.

But, as a description of what would happen if people in LDC’s (least developed countries) had the choice, was he actually correct?

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Confusion on income and poverty

I have heard this sort of claim quite a bit from friends in recent months:

Doesn’t that sound grand – if the richest 100 people in the world gave up a quarter of their income then SLAM poverty gone.  Ez.

However, this isn’t quite right.  In fact it is very much not right.

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Social Capital and Micro Credit Lending

Via Matt, the topic of Social Capital (SC) was recently raised, with some emphasis placed on recognising its oft-ignored “dark side”. Now, I am by no means an authoritative voice on SC, but I have done a bit of work in the past looking into specific Microfinance Institutions (MFI’s) who employ an SC based approach to their micro credit lending strategies. To this end, Matt has kindly invited me to briefly blog about SC within this context, and hopefully, get us thinking a little more about how the drive for increased SC may not always result in sunshine and rainbows at the end of the day for all involved.

Just a bit of conceptual grounding first as I’m well aware that a universally accepted definition of SC is an elusive beast, and from my own experience that this non-specificity often leads to confusion both within and between the social science disciplines when discussing the perceived value of SC (why it’s of worth (or not), or if it’s even a thing at all).  As this is an economics blog, and not a sociology journal, I don’t really want to get into this debate. Instead, I will rely on how MFI’s themselves (by in large) equate SC for framing purposes– namely that social networks between individuals within a community hold implicit and explicit economic value.

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Resource booms and income distribution

Via Vox Eu comes a piece looking at the distributional consequences of resource booms – using Australian data.  Their conclusion:

We need good time series data from developing countries to see whether the distributional impact is bigger there than what we find for Australia. Until then, the analysis here seems timely and relevant, not just for Australia, but for all resource-rich developing countries as the price volatility experienced by the former since the late 19th century was greater than that for the average commodity-exporting low-income country.

The distributional impact of commodity-price shocks in Australia (Canada and New Zealand) should yield important lessons for primary producers from the developmental south.

True – the idea that taxation should be more progressive the more dispersed income and wealth is is an old and widely accepted idea.  And this gives us another way to conceptualise it, with a relevant shock for the NZ and Australian context.  However, a couple of things to keep in mind when thinking about these issues are: Read more