The economic lives of the Poor (Banerjee and Duflo) Flashcards
(21 cards)
What is the central question addressed in “The Economic Lives of the Poor”?
The authors explore how people live on less than $1 per day, using detailed household surveys across 13 countries to investigate spending, saving, work, and health behaviors. They challenge simplistic views of poverty by showing the poor face a complex array of constraints and choices.
Why do Banerjee and Duflo use consumption data rather than income data?
Consumption data is typically more reliable and less volatile than income, especially for the poor, whose incomes may fluctuate greatly while maintaining relatively steady consumption.
What methodological limitations do the authors acknowledge?
They critique the use of Purchasing Power Parity (PPP) rates for poor populations, noting that they are infrequently updated and may not reflect prices faced by the poor. Despite this, they argue their findings remain robust due to focus on behavioral patterns rather than precise poverty counts.
What is a typical family structure among the extremely poor?
Extremely poor families are large (often 6–12 members) and multigenerational, with high child-to-elderly ratios. This suggests joint family living to share fixed costs like housing and reflects both high birth rates and lower elderly survival.
What infrastructure deficits are commonly observed among the poor?
A: Access to clean water, electricity, and sanitation varies widely. For example, in Udaipur, almost no poor households have tap water or electricity. This lack exacerbates health problems and constrains economic opportunity.
Do the extremely poor spend all they can on food and calories?
A: Surprisingly, no. Even very poor households spend significant shares (up to 10% or more) on non-essentials like festivals, alcohol, and tobacco. This challenges the notion that the poor are perpetually calorie-starved and rationally maximize basic needs.
What do the authors infer from this spending behavior?
A: They suggest the poor value social and psychological well-being, not just caloric intake. Spending on festivals or televisions indicates a desire for normalcy, dignity, or entertainment despite material deprivation.
The paper a group in the seminar wrote on leisure poverty lines…
What do the data say about food quality vs. quantity?
A: Poor households often spend on tastier but less calorie-dense foods. For example, many choose rice over cheaper millets, and sugar over nutritious grains, indicating preferences over pure nutrition.
What kinds of assets do the poor typically own?
A: Durable asset ownership is very low. Few own productive assets like bicycles, sewing machines, or land beyond subsistence plots. However, radios and televisions are relatively common in some areas.
10: Why do the poor save so little despite frequent income shocks?
A: They lack safe, accessible, and trusted savings mechanisms. Savings clubs and ROSCAs are used, but formal accounts are rare due to bureaucracy and mistrust. Self-control problems and social obligations also make saving difficult.
What are the limitations of informal credit markets?
.
A: Informal loans (from moneylenders, shopkeepers, family) often come with high interest rates (e.g., ~4% monthly), reflecting enforcement and screening costs, not just risk. Formal credit is inaccessible to most poor households
How effective is informal insurance among the poor?
A: Limited. Social networks provide some support, but they are undiversified and unreliable during covariate shocks (like droughts). Most health expenses are covered by dissaving or borrowing—rarely by transfers.
What health challenges do the extremely poor face?
A: High morbidity, undernutrition, and low BMI are common. In Udaipur, over 70% had symptoms of illness, and over half were anemic. Poor health is a leading cause of stress and missed work
What are the main constraints to better health among the poor?
A: Low-quality public healthcare (high absenteeism, misdiagnoses), expensive private care, lack of insurance, and unsafe environments. Many delay care due to cost, distance, or resignation.
How much do the poor invest in their children’s education?
A: Not much. Spending averages ~2% of the budget, yet school attendance is relatively high. The low spending reflects use of free or poor-quality public schools and lack of awareness or agency to demand better education.
Are the poor predominantly employed or self-employed?
A: A large fraction are entrepreneurs, running small informal businesses (dosa sellers, street vendors) due to lack of wage jobs. They often combine multiple income sources, including part-time labor and seasonal agriculture.
Why don’t poor entrepreneurs scale up their businesses?
A: Constraints include lack of capital, limited demand, and risk aversion. Most businesses are family-run, asset-light, and subsistence-level. Coordination failures and inefficient competition also reduce profits.
What role does migration play in the lives of the poor?
A: Temporary migration is common—e.g., 60% in Udaipur—but long-term migration is rare due to social ties, lack of opportunity, or discrimination. These short stints supplement income but limit long-term progress.
What critique do the authors offer of romanticized views of the poor?
They push back against the notion that the poor are “natural entrepreneurs” thriving without intervention. Instead, they highlight the fragility and inefficiency of small-scale self-employment driven by necessity, not choice.
- Entrepreneurship is Often a Last Resort
Most poor people run micro-enterprises not by choice, but because:
Jobs are scarce, especially for women and the uneducated
Wage labor markets are informal, limited, or discriminatory
Self-employment offers low barriers to entry (e.g., selling dosas or goods from home requires little capital)
Rather than signaling entrepreneurial ambition, these small businesses are coping strategies.
- Businesses Are Tiny and Inefficient
The businesses the poor run are very small-scale: usually just one person (or family), with no hired labor, no physical infrastructure, and little to no capital.
There are no scale economies: everyone sells the same low-margin goods (like snacks or saris) with no brand, no pricing power, and no growth strategy.
Productivity is low — not because the poor lack work ethic, but because the environment is hostile to productivity: unreliable electricity, weak demand, unsafe neighborhoods, and lack of transportation.
- They Don’t Grow
Most businesses don’t reinvest earnings.
There’s no evidence of a “growth trajectory” — the average business run by the poor doesn’t expand over time or employ others.
Without access to formal capital markets, risk protection, or training, these enterprises remain stagnant.
- High Prevalence Doesn’t Mean High Returns
The proliferation of entrepreneurs among the poor is often misunderstood as a sign of opportunity.
In fact, everyone doing the same thing (e.g., selling food or crafts) leads to intense competition and low profits.
Entry into these activities is easy, but returns are low and volatile
- Not All Poor Want to Be Entrepreneurs
The authors imply many of the poor would prefer stable wage jobs, if available.
Entrepreneurship is often not empowering but involves long hours, stress, and no social safety net.
What broader point do Banerjee and Duflo make about poverty policy?
A: Solutions must recognize that the poor are active economic agents facing systemic constraints—like bad infrastructure, weak markets, and unreliable services—not just victims of their own choices.
What is the natural entrepenur myth?
✅ What the myth says:
Many development narratives — particularly those linked to microfinance and pro-market ideologies — depict the poor as:
Entrepreneurial by nature
Eager to be self-employed
Only held back by lack of access to capital (credit, microloans)
This belief supports interventions like microcredit, assuming that once the poor can borrow, they’ll scale up successful businesses and escape poverty.
