Poor Economics Book Review

Book review: Poor economics: A radical rethinking of the way to fight global poverty

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Poor economics provides a story about how poor people live their lives, issues that keep them poor and some policies that can ease poverty. It provides an insight into poverty through the lens of poverty traps. The authors discuss whether dynamics involving income are S shaped where if an individual starts low then they are trapped at low-income levels or whether they are L shaped, where everyone will eventually converge to high-income levels. They also look into evidence of other traps such as educational expectations trap, health trap, hunger trap and family size trap. The central idea is that incorrect expectations and lack of information

There are those who argue that foreign aid is necessary to get people out of their poverty trap as it assists them to initiate a virtuous circle that will help them to invest in critical areas. On the other hand, there are those who believe that foreign aid is wrong. Their argument is that foreign aid only gives a comforting feeling to the poor that someone is taking care of them, but the aid will not reduce their poverty. It prevents them from searching for their own solutions and might corrupt or undermine existing local authorities. This argument follows that the best option for poor countries is the idea that people can find ways to solve their problems if the markets are free and the incentives are right. Poor economics differs from these arguments and reasons that it is possible to make significant progress in alleviate poverty by taking small steps. They argue that political constraints make it difficult to find big solutions to the problem of poverty. The book is a presentation of 8 years of field research in the villages of developing countries such as India, Kenya, Morocco and Indonesia. The authors steer away from the question of whether foreign aid is right or wrong and investigate the complex and multifaceted lives of poor people and policies that could help them. The authors use a large body of evidence including randomized controlled trials to provide explanations of why the poor

An example of a randomized trials in the book, involves an experiment where people where chosen randomly to receive subsidies for the purchase of bed nets. In this study, individuals were given different levels of subsidies to purchase the nets. The reason for the different levels of subsidies was to observe people’s behaviour in response to subsidies. The individuals were randomly assigned to different levels, and because all the individuals were comparable, differences between them would be the effect of the subsidies. Comparing the behaviour of randomly selected individuals who received different levels of subsidies, the researcher was able questions as to whether people were willing to pay the full price, whether the nets would be wasted if they received some subsidies and whether they were willing to pay for the next bed net if there were no subsidies. The use of random trials proved effective in studying the behaviour of poor people and understanding how they made their decisions. The researcher found that the purchase of bed nets was sensitive to price. The researchers noted that all participants would take a free bed net but demand significantly dropped if they were to pay for