I am now writing to you from beautiful Brong Ahafo, where the cars are strong, the chameleons are good looking, and all the roads are above average.
Sadly, though the cars are strong, there is a shortage of shared taxis here unlike any I have encountered anywhere in Ghana. (Shared taxis run routes, and pick up anyone who wants to go on that route. Most of the time, they are a convenient and inexpensive means of transport.) Getting a shared taxi in Sunyani involves standing at a corner and yelling where you want to go as taxis go by, and then when one stops, rushing to beat the hoards all going for that taxi. The first time I was there, I got a taxi because a driver felt sorry for the poor clueless white girl and made it a point to get me in his car. The next time, I got a taxi based on my rushing merit, which was infinitely more satisfying.
Why don't more people run taxis here? Why don't they raise the price of taxis? I later discovered that the taxi shortage was being caused by a diesel shortage. Many of the taxis converted to run on diesel were not running. Yet again, things that appear to make no sense to an American economist have a logical explanation. The diesel shortage was temporary; sticky prices and fixed capital costs prevented the market from clearing.
Given the shortage, what is the appropriate way to allocate taxis? Free marketers might suggest they be allocated to those willing to pay the most. However, if your concern is allocating them to those who have the most need for them, and you think the welfare created by this outweighs the extra supplier surplus that would go to the taxi drivers, there are other ways of allocating them, which might be more efficient in a context of high income inequality. One, the use of lines, would allocate taxis to the people most willing to spend their time waiting for the taxi. Another, the one actually in use, is to make people spend effort. Those most willing to run, fight, and look foolish must be the ones who value the taxi service the most.
George the monkey eats his dessert (apples) first, then picks the green peppers out of his salad.
When I am in Tamale, I often share my lunch with the office monkey, George. It seems to me that when I share my food with George, my eating habits improve.
There are two reasons for this. The first is simply related to quantity. I don't like to waste food, so normally I clean my plate even if I am no longer hungry. When George is around, I give him my leftovers when I get full.
The second reason has to do with externalities. When I buy food for myself, I often get lazy and buy fried street food that is available nearby. If I share food like this with George, I feel bad for feeding him rubbish. I used to buy egg pies and give George the egg yolk, which I don't like anyway, before I decided that monkeys should probably watch their cholesterol too. As a result, if I know I will be sharing with George, I am more likely to travel farther to get healthy food I will feel good about sharing with the monkey.
I don't know a lot about the field of behavioral economics, but it seems to me that humans, as social animals, may be psychologically wired to internalize externalities through the feelings of guilt and warmfuzzies/self-righteousness.
Chris Blattman’s blog recently critiqued an article by Dan Pallotta arguing that earmarking funds for programs with proven impact is actually less impactful than using the money for further fund-raising efforts. Pallotta makes an argument that spending on fund-raising allows you to, in essence, leverage your funds and get a much higher return on investment than you would if you’d spent that money directly on programs.
Blattman makes two counter points:
1. The effectiveness of the programs you are funding feeds back into your ability to use your money to raise more funds.
2. It’s not clear that lack of funds is the binding constraint in aid.
I’m a bit skeptical of Blattman’s second point—I thought I was out here getting malaria to make sure that scarce development resources were spent on programs with the highest impact. I think it is more correct to think of funds and good practice as being similar to labor and capital—in most circumstances you can add more of one or the other and improve outcomes, but are most effective when increased together.
I think Blattman’s first point is completely correct. Pallotta is right that fund-raising can increase impact, but program impact is fundamental to fund-raising effectiveness and meaning. Donors should be attracted by good programs. In a rational world with perfect information, donors would know exactly how much money they wanted to spend, and they would choose the program with the highest impact-per-dollar. This is how these institutional funders Pallotta is complaining about behave. However, in the real world, human behavior is less rational and more suggestible. If fund-raising can actually increase the number of dollars out there to be used on development, it can indeed be highly impactful. Note that fund-raising that just diverts funding from one project to another from a fixed pool of resources doesn’t get to claim this—unless the program it diverts money to is more impactful that the program it diverts money from.
Which brings us to the next point-- if your programs don’t have impact, it doesn’t matter how much you leverage your dollars- you are just using more money badly. Palotta’s proposal to use seed money to fundraise is similar to the concept of hedge funds. Hedge funds can’t make huge returns without leveraging their initial funds with loans, but if they don’t put the leveraged funds in investments with good returns, they are just wasting everyone’s money.
Palotta also argues that you often can’t know what is going to be impactful ex ante. That may be true, but that doesn’t mean you should throw in the towel and give up on trying to target impactful programs. Market investors often can’t know which stocks will take off, but no investor would throw money at one without trying to make an educated assessment of its future value. If funding truly is a scarce resource, you have to have some standard for choosing which programs to fund and which not to.
Polatta may be right to encourage donors to allow their funds to be used for further fundraising, but this only makes sense in concert with an emphasis on evaluation. After all, what is the point of all that fundraising if you aren’t going to do anything good with it? And for fundraising to matter, Blattman must be wrong about money not being a binding constraint. If money is a binding constraint, then you can’t fund everything, and it becomes all the more crucial to have some way of assessing the best programs.
If you are like me, you know at least one person who loves to get bumped on flights. That traveler connives to travel on busy days, when airplanes are most likely to get over-booked, so that he or she can receive a sizeable travel voucher or free ticket in exchange for taking the next flight.
Recognizing that market exists, Delta is planning to start allowing travelers to bid for bumps. On overbooked flights, passengers would be allowed to submit the price they would be willing to accept in exchange for taking a later flight. Passengers with the lowest bids would be selected to be bumped first.
I am curious to see (and the article doesn't clarify) whether Delta will pay each passenger the voucher amount that he or she bid, or whether Delta will pay each passenger the voucher amount bid by the last passenger to be bumped. I am also curious to see how quickly information about winning bid prices gets out, and how the information affects bidding strategies of passengers.
I am also curious to see how long it will take before a flight of passengers successfully games the auction...
Sounds like a good research project for an auction theorist!
Donald Marron recently bloggedabout a new economics paper on gender arbitrage by multinationals in South Korea. The idea behind gender arbitrage is that discrimination in hiring against a particular group, like women or minorities, creates opportunities for non-discriminating employers to hire talented people for a lower wage. When non-discriminating employers take advantage of this, it should eventually erase the gap in wages between the disadvantaged group and the rest of the labor market. This paper found that multinational corporations have been able to benefit from discrimination against women in the labor market that drives down wages for educated women. In Korea, working women earn only 63% of what working men do. (Not all of this is due to discrimination.) The paper found that among multinationals, a 10 percentage point increase in the number of women in local management positions led to a 1 percentage point increase in return on assets. Marron points out that the fact that companies that hire more women have a hire profit margin means that there is still room for more arbitrage-- implying that discrimination is still resulting in lower wages for women compared with men who have the same skills and abilities.
As unfortunate as it is that women in Korea are being paid less than they are worth, from the perspective of both women and employers in northern Ghana, this is an enviable problem. In Ghana as a whole, about 20% of adult males have secondary education or higher; only about 10% of adult females have that level of educational attainment (source: GLSS 5), and the gender gap is most pronounced in the Northern Region. Traditional views of gender roles still prevent girls from having access to education at the same rate as boys. (Girls may also have a higher opportunity cost of education: girls are often more economically valuable than boys, because they can assist with child-rearing and food processing, or work as maids, at an age where boys are still too young to be much help with farm work.) The result of this is that it is difficult to find qualified female candidates for jobs requiring a high level of education.
This is especially apparent to employers like me, who actually have a bias in favor of female employees. Since the majority of the respondents in my survey were female, I wanted to hire female surveyors because they are more likely to put female respondents at ease. Despite actively recruiting female candidates, posting notices encouraging women to apply, and asking the field managers to try to achieve a balance in the number of male and female surveyors we hired, we received few applications from female candidates, and less than a quarter of the surveyors we hired ended up being female.
A friend of mine recently set up an account with stickK to help him quit smoking. Every time he falls of the bandwagon, stickK makes a donation, billed to his credit card, to the Republican National Committee-- a cause my friend thinks is decidedly UNworthy.
While I lauded his ambition to quit smoking, my first reaction to stickK was mixed. With stickK, every time my friend smokes a cigarette, the negative externalities are doubled. (Or not, depending on your political leanings. But you get the idea.) For my friend though, the idea of money being donated to a cause he hates is much more powerful than simply deducting money from his account.
Economists tend to be enamored with finding ways to internalize externalities, that is, shift the burden (or benefit) of a behavior back to the person engaging in that behavior. In some cases, though, knowledge that the externality exists may be sufficient, if the person's propensity for guilt is high enough. Most people don't like to feel like they are burdening others, and they certainly don't want to be seen as causing a burden to others. However, if the negative consequences of an action are completely internalized, the people can justify choices they know aren't welfare maximizing as harming no one but themselves.
As a side note, some of you may be wondering how stickK knows whether my friend smokes or not. StickK itself relies on self-reporting, which is obviously not ideal. However, my friend's boss will be administering weekly drug tests for him, which should be an effective enforcement mechanism, despite being incredibly awkward.
I have worked in economic policy and research in Washington, D.C. and Ghana. My husband and I recently moved to Guyana, where I am working for the Ministry of Finance. I like riding motorcycle, outdoor sports, foreign currencies, capybaras, and having opinions.