Book SummaryPoor Economics, by Abhijit V. Banerjee and Esther Duflo

1-Page Summary1-Page Book Summary of Poor Economics

As of 2005, 13% of the world’s population lived on less than 99 cents per day. Development economists often try to design programs to alleviate this poverty by asking general questions and making unverified assumptions about the lives of the poor. Accordingly, their programs often result in few improvements to the lives of the impoverished.

Esther Duflo and Abhijit Banerjee approach the analysis of poverty differently: not by asking high-level, abstract questions, but by asking pointed questions exploring specific factors that affect the way the poor live. Economists at MIT, they founded the Abdul Latif Jameel Poverty Action Lab (J-PAL) to...

Poor Economics Summary Ask Small Questions to Gather Useful Data

The approach Duflo and Banerjee take to analyzing poverty involves asking smaller questions than are typically posed in development economics. Big questions are common in the field. For example, “Should other countries send resources to poor nations for free or give them the freedom to alleviate poverty on their own terms?” This is a broad question about aid versus freedom with no universally applicable answer.

Duflo and Banerjee suggest that such questions fail to uncover the nuances of the lives of the poor. Instead of asking, “Should aid be given for free?” we might ask, “How much do people use free insecticide-treated bed nets one year after they receive them, and how does this compare to the usage of full-price bed nets?” Breaking larger questions into smaller parts like this lets us make better observations that yield more useful information.

In Poor Economics, the authors draw on numerous sources of information to answer small questions and create a detailed picture of the poor that can support better policy decisions. Much of the information they present comes from studying evidence...

Poor Economics Summary Small Questions About the Private Lives of the Poor

In the following sections, we’ll discuss some of the conclusions the authors reached by asking small questions about the behaviors and habits of the poor in their private lives. We’ll explore why the poor are malnourished, how they interact with their healthcare resources, why their schools are failing them, and how they plan—or don’t plan—their family size.

Why Are They Malnourished?

Duflo and Banerjee discuss a well-known problem among the poor: malnutrition. They assert that policymakers assume the poor are malnourished because they don’t get enough calories, either because they can’t afford to buy enough food or because not enough food is available. For this reason, many programs focus on getting more calories to the poor in the form of carbohydrate-based staples, like rice.

However, Duflo and Banerjee believe this approach is misguided: In reality, the poor don’t need more food—they need more nutritious food. The evidence shows that even when the poor have easy access to calories, they still often suffer from malnutrition because many of the foods they eat lack key micronutrients. This leads to health issues.

Global Food Insecurity on the Rise

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Poor Economics Summary Small Questions About Markets and Institutions That Affect the Poor

According to the authors, the private lives of the poor are influenced by market and institutional forces. In this section, we’ll explore the factors that shape these forces, and we’ll discuss how they affect the poor.

Why Do Financial Services Not Help the Poor?

Wealthy people benefit from financial services, such as comprehensive insurance and easy-to-access credit, assert Duflo and Banerjee. Despite the fact that the poor also need these services, businesses rarely provide them.

Insurance Companies Offer the Poor Few Options

Duflo and Banerjee argue that the poor have a strong need for insurance because they’re exposed to more and greater risk than the wealthy: Their jobs (often in agriculture or casual labor) are unstable, they’re more vulnerable to disease, and they endure violence more often. Living on a knife’s edge of financial security, the slightest setback can be catastrophic for the poor.

(Shortform note: This factor—the lack of security in the lives of the poor—is known as low socioeconomic resilience, and it’s one reason why the poor are disproportionately affected by natural disasters or extreme weather events. Because [the poor don't have...

Poor Economics Summary Four Key Lessons About Improving the Lives of the Poor

Banerjee and Duflo set out to examine the lives of the poor as they actually are. They see several key lessons emerging from this study. In this section we’ll share four of those lessons, as well as the authors’ suggestions for addressing them.

The Poor Need More Information

When it comes to personal or economic decisions, the poor often simply don’t have enough information to make good choices, believe Duflo and Banerjee. To get more information to the poor, it should be delivered in enjoyable formats, such as through song or a funny advertisement, and it should be delivered by sources the poor find credible, like the press or local, trusted people.

(Shortform note: A recent study shows that, in trying to get information to the poor, policymakers should carefully consider the message, the medium, and the messenger. Duflo and a team of researchers conducted a randomized controlled trial in India and the United States to determine the effectiveness of using social media to deliver information directly to the poor. They found that messaging delivered via Facebook worked best when it was presented in simple terms...

Shortform Exercise: Analyze Poverty Near You

Duflo and Banerjee’s approach to analyzing poverty is based on the belief that the poor make deliberate choices about their lives—they’re making the most of the little they have. In this exercise, we’ll consider how we might analyze poverty that exists close to our homes.

You may not live in a place where you often encounter abject poverty of the kind Duflo and Banerjee discuss (living on less than 99 cents a day). However, poverty is in some sense relative to the cost of living in a particular area. Take a moment to do some quick research—find out what the poverty line is for a household of your size where you live. Write down the source of your information and the poverty line you discovered in the box below.