POST TIME: 21 October, 2019 10:48:50 AM
Why do Nobel Prize winners for economics this year matter?
The fundamental contribution of Banerjee, Duflo, and Kremer were to develop an experimental approach to development economics
Mohammed Abul Kalam, Ph.D.

Why do Nobel Prize winners for economics this year matter?

This year's Nobel Prize is important both for what it recognises and who it recognises.For most people the second week in October probably doesn’t hold much promise.Longer days for some, perhaps. But for those is us in the economics student ( I studied MSc in Economics at the Sussex University, England), come the second week of October I am furiously compiling lists and discussing odds - about who is likely to win the coveted Nobel prize in Economics. More formally known as the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”, the prize has been awarded since 1969 for outstanding contributions to the field of economics. The puzzle of who receives the novel prize is in itself a bit like an equation.
It often depends on who else is in the running and the chosen field is cyclical. It’s highly unusual for the prize to be awarded to theorists from the same field several times in a row. 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 recognized 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 were to develop an experimental approach to development economics. They built a scientific framework and used hard data to identify the causes of poverty, estimate the effects of different policies and then evaluate their cost-effectiveness. Specifically, they developed randomized 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 behavioral responses.

The impact of these developments upon real-world development outcomes is 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 the climate and environmental policy, social networks and cognitive science.

Diversity issues: The 2019 Nobel Prize in 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 for 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 the 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.

Age plays a factor too, both because the prize cannot be awarded posthumously and because the younger you are, the less likely you are to be in contention because you’ve got years more in which to make a contribution.

Which makes this years’ winners remarkable. At 46 (ten days shy of 47) Esther Duflo is the youngest recipient of the award in its 51-year history and only the second female.This year’s trio of winners – Abhijit Banerjee, Esther Duflo, and Michael Kremer received the Nobel for “their experimental approach to alleviating global poverty”. By designing experiments at a small level, they were able to provide real-world answers about what works in alleviating poverty.

What works matters: In doing it they sought to actually understand the lives of the people they were trying to help. Notably, Kremer’s first experiment – providing textbooks at schools – failed. He found that the impact on test scores from the textbooks (and the induced enrolment of students) was zero.Duflo and Banerjee spell out what works and explain how small interventions can create lasting change in their important book Proof Economics: A Radical Rethinking of the Way to Fight Global Poverty.Along the way, they’ve created a movement. Their work with the Abdul Lateef Jameel Poverty Action Lab (J-PAL) inspired a new generation of economists to see, and search for, impact in their research.

And women matter: Beyond that, the prize is going to inspire a generation of female economists who have long been sidelined in university economics departments, both as students as academics. It is well known that the often harsh and abrasive way academic economists treat each other and confront each other in seminars is unhelpful to the image of the profession. And it is likely that we are seeing this reflected in the low take-up of economics by women.

The pipeline of female economists is leaky at all stages – graduate studies, assistant professorships, tenure and beyond. As a result, not many women make it to the top of their professions, and even fewer are recognized.

International Women’s Day is a good time to ask two critical questions about economics: do we have enough women in it, and does it matter?Women are less likely to take it up than they used to be.Twenty-five years ago around half of the students studying Year 12 economics were female. Today it is only around one third. In universities, only about 20% to 30% of undergraduate economics students are female.

In the public sector, one-third of the economists in senior management roles are women. In academia it is far worse: fewer than 10% of economics professors are women, compared to 20% of professors in science, technology, and maths. Here’s why it matters: (1) Around half of the customer base for most businesses are women, and around half of our citizens and voters are women. Government and business decisions can affect women and men differently. If economists are mainly of one gender they are likely to miss things (2) More generally, research finds that diversity among decision-makers leads to better decisions; and (3) Even though the models and methods economists use are gender-neutral (at times inappropriately so), the types of questions economists choose to analyse are not. Greater diversity will lead to greater diversity in the topics being examined.

Why so few women study economics: It’s partly a function of it being a male-dominated discipline. Study after study finds that when both men and women receive low grades in a discipline dominated by men, it is the women who are the most likely to drop out. Another study finds that when men and women of equal mathematical ability are asked to rate their ability, women rate it less highly than men.Their teachers rate them worse too. A letter of recommendation for women tends to be shorter and focus more on personality traits and less on skills or intellect than those for men.

The effects are weaker when women have female teachers. Role models matter.And women are more likely to study economics when they are told about their real-life impact.

Why academia leaks: The gender gap gets worse the higher women attempt to progress.Some economists think this is not a problem: if there aren’t many women at senior levels in the field, it must be because they’re not very interested or not very productive.It is a simplistic view that ignores the drivers of apparent productivity. Women are more likely than men to be given teaching and un-promotable administrative duties at the cost of research time. By themselves, none of these barriers may amount to much, but combined, they work to slow down the progress of women and disguise true merit.

Why it won’t fix itself: The gender gap in economists will not disappear naturally. Indeed, the progress in closing it has stalled. True progress won’t be achieved until we agree that there are problems with the system, rather than women.

Women think so. A 2014 study found that more than 50% of female economists believe the profession is set up to favor men. Men do not: more than 75% believed it either favored neither gender or favored women.

The writer is Former Head, Department of Medical Sociology, Institute of Epidemiology, Disease Control & Research (IEDCR),  Dhaka, Bangladesh