Poverty Traps and Best Charities

In Monday's post I linked to a post on the World Bank Development Impact Blog discussing the merits of different types of interventions.

First I should have read the full article it was talking about, but too many clicks made me stop. Here is the article

In short the article talks about which types of charities would likely be the most effective based on economic study evidence. The blog provides results of a survey of [excellent!] development economists  on which intervention are the best. I think my issue with the rankings is that the top five (clean water, deworming, bed nets, child sponsorship, and clean stoves) are problems most likely to be found in the very poorest those living on less than $1 a day. Microfinance, animal donation, fair trade coffee, and libraries are more likely to be targeted at those living on $1-$2. I agree with survey results and would provide similar rankings. However, I don't want to ignore the possibility that helping those making $1-$2 could be more effective in the long run. Development economist sometimes think of poverty as a trap. If you are really poor you cannot invest in your health, education, and nutrition so you become poorer. If you get a little help (say clean water, free bed net) you may be slightly less poor but still living on close to a $1 a day. Those slightly richer might be able to see permanent change from a small donation (see this post on the development impact blog). Of course the impacts of getting 10 cents extra income are greater for the poor.

As the author of the 2nd impact blog post David McKenzie noted in response to my comment on the first post I linked, there is a need for long term evaluations. So I guess the next step is to find a project that looks for long term impacts. I have a couple in mind that I'm working on and hopefully they can shed light on interventions.

Vote Early and Often for Grinnell: Social Networks and Searchers

The people who brought you cupzza's are now asking for your help. The Social Entrepreneurs of Grinnell from my undergrad Grinnell College are in a contest sponsored by the White House. You can vote for them here. Why should you vote for them? First as I mentioned they helped create cuppzza's the combination pizza and cupcake, which was later picked up by Marginal Revolution.  More importantly they provide loans both in the developing countries and in their own backyard. I like the idea of providing start up funds for students to learn a business (see this Scott Adams article). If the Grinnell Social Entrepreneurs win they would get to go the White House and promote their organization on MTV.

More generally I thought this would be a good time to discuss these types of contest where the winner is determined by who can get the most people to vote for them online. If we assume voting is a proxy for the social capital generated by these organizations then the method for choosing the best proposal seems good. However, larger schools might be at an advantage since those schools have a larger network to draw on. Although per capita Grinnell has a very powerful network. By posting the vote info on Grinnell Plans (Grinnell's own social network), the Social Entreprenuers shot up from 5th to 2nd. You can vote for them here and I hope you will. I'm using my social capital with you (if I have any) to urge you to vote. Of course this type of thing is low cost to me and now we have all increased the knowledge.of this event with no cost to those organizing the event. That really is the beauty of these contest is they externalize the cost of promotion

However this post on the World Bank development blog post warns us of getting too wrapped up in the media surrounding the best ways to give the poor. Granted one of the things that the post suggests is the microfinance is overrated. This has been a recent theme of some works showing that microfinance has little short term impacts. I think the verdict is still out with only two or three studies.  However, I think having students learn about things work by directly involving them in projects and working locally is an excellent mission.

So again you can vote for them here

Evaluating Bar Rescue or Corporate Pirates in Silver Spring

Just blocks from my house a reality show called Bar Rescue has commandeered the Piratz Tavern, a local bar with a pirate theme. I had only been to the Piratz Tavern once in my 4 year in Silver Spring and that was on a lark after with an entire wedding party still dressed in formal attire. Piratz Tavern didn't seem to be doing well based on what I heard from friends, yelp reviews give it 2.5 starzzz,  and I never paid it much attention. Of course until Bar Rescue came and took over the bar. I'm not the only one interested as my favorite local bloggers Thayer Ave and Silver Spring Singular  also are covering the story. The Piratz theme has been sacked and the new name appears to be Corporate Bar and Grill, see the local blog stories for pictures.

I will start this post by saying that I have now only watched one episode of Bar Rescue and spent less than an hours research on it but I thought I would report my findings. It's a blog post about a reality show that rescues bars so take everything with a grain of salt and a slice of lime.

The goal of this study was to see how successful the show Bar Rescue is at turning a failing bar into a beloved bar.

The theory. By injecting a large amount of money into a bar. Providing some buzz and  some improvement in technique that bars could be rescued.

Sample Selection Bias. Ideally the bars would have been randomly selected from a pool of similar bars and we could compare to a control group. That didn't happen the though the goal is to entertain not evaluate the Bar Rescuers. One problem with a show called bar rescue is that any bar featured would likely be in need of rescuing therefore we would expect some bars to fails. However,  it could also be that the show picks bars in placed likely to succeed so we might not be able to compare the selected bar to those not being rescued. Since I'm not trying to publish this study in an academic journal I'm not going to worry about it but will acknowledge the problem.

Data Sources: So far Bar Rescue has had 10 episodes featuring 10 bars. I used the name of the bars in google searches to find the following information. If the bar was still open and it's current Yelp Reviews. I used Yelp since it seems to be the largest source of these types of reviews and Yelp reviews do show economic impacts.

Results:  Of the 10 bars featured last season 7 are still open. I determined this by checking yelp and checking bar webpage or facecbook pages for updates in the last month. It appears the bars featured in episodes 102, 104, and 105 (see data source) are now closed.  Of the 7 still open bars 6 have 3 or 3.5 stars on Yelp and none of those 6 has consistently great recent reviews after the show. The seventh bar The Bone in Framingham, MA  has four stars on Yelp and some pretty good recent ratings.

Conclusions: The best case scenario is The Bone a four star Yelp bar. For comparison Silver Spring has two four star yelp bars (Jackie's Side Bar and Quarry House), which are also my two favorite local bars (not that my ratings matter). I'm doubtful, we will get the best case scenario.  Since The Bone tweaked the concept they had while the change from Piratz Tavern to Corporate Bar seems bigger change. In short I think if Corporate Bar and Grill survives we are likely to see a 3 to 3.5 star bar, which does serve it's purpose McGinty's is a 3 star Yelp bar and it serves its purpose and a fine pint too. So good luck to owners!

Framing the Contraception Coverage Debate with Behavioral Econmics

Greg Mankiw and many other economists are puzzled by the Obama administration's change in policy from A to B on contraception coverage for employer health care programs. (from Mankiw's blog here is his version of A and B)


A. An employer is required to provide its employees health insurance that covers birth control.

B. An employer is required to provide its employees health insurance. The health insurance company is required to cover birth control.

Rationally we would expect A & B to be the same. It does remind me of a classic behavioral economics problem created by Tversky and Kahneman. Suppose you need to purchase a new suit and a fancy pen. The suite cost $500 and the pen $25 in your local store.

A. Would you travel 15 minutes to go to a store where the suit cost $500 and the pen $18?

B. Would you travel 15 minutes to go to a store where the suit cost $493 and the pen $25?

More people would travel for  A than B even though both save you $7. This is because we often use the percentage of savings to figure out if something is worth it. Or as Dan Ariely puts it in his book Predictability Irrational we may pay $200 to add a soup course on a $5,000 catering bill, but still clip coupons for 25 cents on canned soup from the supermarket.

I wonder if this is all a framing issue and by including contraception in a larger bill for health care it becomes more like the catering bill than condensed soup.

Price Check at Restaurants

The Washington Post's Food Critic's weekly chat included a question from an irate diner at Proof (a fancy DC place) who along with his dinner companion ordered 2 beers off the menu. Not realizing they had ordered $100 beers (when most beers there are in the $10-$15 range). Related the Haggler at the NY Times addresses a diner who ordered the White Truffle Pasta only to find out when the bill arrived that the dish cost $250 (roughly 5 times more than any other entree).

On the Post chat it does put the wait staff in a tough position (at least in the beer situation where the price was on the menu). Questioning a patron who wanted it might be seen as rude. Seems that prices should be stated for specials. I tend to think think if there is a deviation from a standard expectation (like say more than twice the normal cost) that a waiter should point this out. I'm not sure it is optimal to mandate that special prices always be announced once enforcement costs are taken into consideration. I did once ask for the special price at an economic conference while dinning with a more senior colleague, and I felt a little bit embarrassed. Luckily he said we are economists knowing the price is essential to our decision making. Of course then he paid for dinner, which I'm wondering if he did because he thought I went a restaurant out of my price range (which I didn't). Which reminds me I should return the favor to that economist.

So perhaps the solution if you don't hear the price for the specials is to announce you like economics and need to know the prices before figuring out your utility.