Phones and Economic Development in Africa

"The percentage of Africans who could access a mobile phone leapt from only 10% in 1999 to more than 60% by 2008—far outstripping improvements in other infrastructure (roads, clean water, or indeed landline telephones)" from Jenny Aker writing on the Center for Global Development's Blog

As described in the link cell phones can do a lot of great things. People can get updates on the latest prices, order goods faster, and communicate with their safety net in times of trouble. Cell phones are not a substitute for everything. To work well farmers have to have goods to sell or money to buy things. To complement cell phones Aker suggests there also needs to be improvements in education and health infrastructure. Related Aker is also working in Niger to see if phones can help improve literacy. Early evaluations by Aker and coauthors suggest that phones can in fact help people learn to write and improve their math skills.

I also recall using cell phones to deliver health information. So as Aker points out they may not be silver bullets, but her work suggests a lot of promise for phones.

This Post is For You

A loyal reader e-mailed me saying he liked my blog. I'm always a little surprised when someone I've never met finds my writing enjoyable. Of course I shouldn't be as surprised, when it's a fellow home brewer who has lived in many of the same places I have (Ohio, Wisconsin, DC).

Check out his new tublr blog The Homebrewing Triathlete about home brewing, beer, and triathlons.

You will find amusing stories like this about slugs preferences for beer

"The next morning there were two slugs in the Guinness, two in the Moosehead and none in the pan with a blend. Clearly they had no preference for Irish or Canadian brew, or Mexican if I included last week’s Corona. But compared to the number of slugs I found in the Budweiser, this performance was, well, sluggish"

Also amusing aside about the restaurant that chargers for no shows. As my friend Jennie alludes to my wife and I missed brunch with her and friends at a place we had reservations for 6. They didn't really believe Jennie that her friends canceled because they were off to have a baby, well until the other couple walked in saying did Marie, my wife, have the baby.

Finally, for Britt, I miss Beloit's Mexican food. True though outside of that Beloit isn't full of ethnic dinning dreams, but there are quite a few great places for breakfast.


For my other readers, thanks for reading!!

Cheap Credit: Gordon Ramsay Kitchen Nightmares or Tyler Cowen Dinning Dreams

"The Austrian theory of the trade cycle explains why loans are systematically granted to people who will almost certainly not be successful restaurant owners." From a recent Forbes post by Art Carden

The article explains how poor restaurants featured on Gordon Ramsay's show Kitchen Nightmares are an example of misallocated capital due to cheap credit and with cheap credit people with little restaurant knowledge are more likely to open places wasting valuable resources. On the other hand, I wonder if cheap capital leads to what I would call Cowen dinning dreams, after Tyler Cowen the economist who touts the virtues of small ethnic restaurants. My guess is with out cheaper credit, I wouldn't have excellent Burmese, Vietnamese, and Thai places within a couple of blocks. There would likely be more chain restaurants, backed by companies who are wealthy enough to take on loans with higher interest rates and have the collateral to get lower interest rates.

I'm not the right economist to debate the Austrian business cycle, but with increasing information on where to find the best food, cheap credit would seem to lead to a tasty end (or two if you find a good place for Austrian sausage).

Bus Depot at Union Station

Union Station in DC is building a new bus terminal for the numerous buses specializing in short trips between major east coast cities.

I have only taken a bus to New York, one time. I agree with the post article that one of the biggest advantages of a terminal is it will avoid the confusion and congestion caused by having buses pick up passengers on the street. The confusing part is that buses have to change pickup locations from time to time, when I took my trip the Megabus website said the boarding location had recently moved.

Of course nothing is free, the depot will add a 75 cent surcharge to each ticket. Each company will also pay $30,000 per bus parking area. To me it seems worth it to have easier access to metro and the services at Union Station.

I had read but can't find it that some of the smaller bus companies might not move to the station because of the high fixed cost of a parking space.

I'm often skeptical of projects that help a particular business, but overall this one seems to pay for itself and provide some extra benefits.

What the World Bank Thinks About Fertilizer Subsidies

Last week at the American Agricultural Economics Association meetings I attended a panel on Malawi's fertilizer subsidy program. The program has been touted as a success by the NY Times a few years ago, but the Economist pointed out that the subsidized fertilizer was putting fertilizer sellers out of business.

The World Bank also has an FAQ on the program saying "In combination with favorable rains, this program has contributed to sharp increases in maize harvests in 2006 and 2007. During the most recent harvest, the country produced an estimated 3.4 million metric tons (a surplus of 1.2 million metric tons above national requirements). This has allowed Malawi to start exporting 400,000 t of grain to Zimbabwe and 80,000 t to Swaziland and Lesotho."

My biggest take away from the session was the program was really expensive, taking up 8-12% of Malawi's total government budget a year. I wonder if this is the best use of the funds. As one person at the session pointed out though, they thought this program was more about getting votes than doing what is best for development. It is important to remember development policy also needs to be approved, so sometimes second best is the only options.

More dispatches from the AAEA on chickens from my Towson colleague James Manley

Lessons from the Agricultural Economics Meetings

I just returned from the Agricultural and Applied Economics Association meetings in Pittsburgh.

One session I attended was on crop insurance, while this may not sound exciting insurance is a key part of international development. The basic conceptual theory is that poor farmers have two choices, they can grow a low yield and low risk crop or grow a higher yield high risk crop. Extremely poor farmers often don't take the risk of high yield crops, because one bad season can be a matter of life and death. Crop insurance could be offered to cover bad harvests. The difficulty is that insurance has to prevent moral hazard (if you have insurance why work hard on your harvest) so insurance is often tied to things out of the farmers control like rainfall or average harvest of many farmers.

One cited paper at the session by Gine and Yang tested if farmers in Malwai would buy insurance when offered as part of loans. They found that making insurance a requirement of getting a loan, made people less likely to borrow. From the abstract

"There is suggestive evidence that reduced take-up of the insured loan was due to farmers already having implicit insurance from the limited liability clause in the loan contract: insured loan take-up was positively correlated with farmer education, income, and wealth, which may proxy for the individual's default costs. By contrast, take-up of the uninsured loan was uncorrelated with these farmer characteristics."

I think the take away from the session is that insurance could potentially help but thus far it has been hard to find a way to get farmers to buy into it. The work in the session and above suggests making contingent loans might be the way to go.

Charging for No Shows

Nojo a Japanese restaurant in San Francisco has a policy that if someone in your party doesn't show up $25 is added to your bill. (from Inside Scoop SF)

In response to questions about the charge the owner shows how the policy was the result of perverse incentives when the restaurant would only take reservations for 6

“We started off where we didn’t charge, and people were making reservations for six and only four showed up,” he said. He added that in several cases the diners originally asked for a reservation for four and when they were told only reservations for larger parties were accepted they quickly upped their numbers. In more than one case, only four people showed up. By trying to scam the system, it often meant that seats went unfilled."

Some diners who had to pay the charge responded
"The food was great and I’d gladly go back had I not seen this side of the restaurant. As a party of 5 we were all left with a (pardon the pun) bad taste in our mouth. We amount to 5 Yelp reviews that could have negative consequences for them in some way and I’d think they’d value the business a bit more since they’re the new kid on the block."

So what damage could those 5 reviews do. A recent paper suggests that 1 yelp star is worth about 9% of revenues. I found a nice summary of the paper at a fine theorem.

With 88 reviews and a current average of 3.5, my rough estimate is that 5 1-stars reviews could at most bring down the average rating 1/2 a star (since the average is rounded to the nearest half). So potentially 5 negative reviews could cut around 5% of revenues.

Checking Yelp, shows only 1 reviewer that complained .

So it looks like Nojo may still see economic benefits to keeping the policy.