Justifications for spending public money….

A big part of development economics is about justifying expenditures of public monies.  Why are people better off with spending tax money this way? Who is better off?  Who is worse off? Why are those better off not able or willing to do it themselves?

In mainstream economics, where the presumption is that people are free to make economic choices (they are in a market economy), the arguments for public expenditures usually rely on “market failure.”  A particular category of good or service may exhibit some kind of external effect, a spillover, that means that private provision of the good or service would be relatively low compared with some ideal level that everyone might agree on.  (The provision of information itself is an important issue here.)  Urban planners and real estate developers are intimately familiar with this problem: your handsome building and attractive service raises rents and profits for nearby business, but they are not going to pay you for you to locate next to them.  So there is need for coordination.  Malls, of course, were a private-sector solution to the coordination problem (and another externality, the parking congestion problem!).  The function of government (or other large organizations) is to compel or induce the scaling of the sector to permit the spillovers.  Similarly, regulation and taxation limits bad spillovers.

Recently, in development economics, a new argument is being made.  It’s an old argument, very close to Musgrave’s merit goods, but it is now gussied up with a specific mechanism and experimental evidence.  The argument is that intervention may be needed because people who benefit from something are not capable of recognizing that they would benefit by more than the cost.  The paradigm example going around is clean water.  It takes so little (money, time) to get clean water, and the small investment in cleanliness is easily repaid with improved health (and so higher incomes), but poor people are not able to make the calculations because poverty imposes “cognitive challenges.”  Zwane (2012) quickly reviews and Shah, Mullainathan and Shafir (2012) provide the experiment result.

My first (and very quick) reaction to this line of thinking is that the argument has been made in a different way by the anti-recycle liberatarian crowd: the recycling meme inculcated since childhood makes it impossible for “rational” people to realize that the benefits of washing out a yogurt container are impossibly small compared with the cost (in terms of time).  Americans (in particular) are now cognitively impaired because of the recycle meme, no?  The point being, you can find a cognitive challenge under every rock, and do “we” want government spreading good memes and bad memes according to fashion?  What if government is convinced that pre-marital sex (or over-use of contraception! or insufficient family nurturing!) is bad for the poor but they are cognitively challenged and cannot recognize the negative effects?  Are posters called for (see below, substitute your bogey-man based on latest research on oatmeal published in Science)?

Well, that digression aside, spreading memes about good behavior and being a benevolent paternalist (this medicine is for your own good) has been a job of government and large organizations for 112 years, at least.  Growing up in Puerto Rico, my parents were fans of the graphic design work of Jack and Irene Delano, who were commissioned by the WPA to make posters.  Here’s their sanitation poster, put up everywhere in Puerto Rico.  I guess after seeing that every day, kids probably started shooing flies away and thinking it was disgusting to have flies on food.  In 15 years in Burkina, the only places I see posters like this are in the headquarters of NGO offices.

So maybe the research program is to better convince governments to do what everyone already knows is their job?  (The success of Kremer and Miguel in re-energizing de-worming… a result of the research result or a result of… Michael Kremer and Ted Miguel, development activists and friends of Bill Gates?)

A thought I have is that I’d rather see micro-experimental research about why government officials in charge of public health are “cognitively challenged” so that they don’t make the decisions to order 10,000 posters, the way the (colonial!) government of Porto Rico did back in 1941.  Incidentally, Bailey Ashford, after whom is named the main street of Condado, was the American military doctor who was instrumental in eradicating hookworm in Puerto Rico and later in southern United States, around 1900.  So that’s why I say 112 years.  Not that the Spanish in PR did nothing, and not that the Americans were all good.

Addendum 11/4: When I think of cell phone (mobile) adoption, or adoption of bottle-feeding, it strikes me that these are cases where the cognitive incapacity induced by scarcity salience did not operate… poor people adopt cell phones and bottle-feeding before clean water, even though they involve positive price purchases.  So there is still a “preference” or “information” angle to the problems, obviously.

Thanks Thane Kreiner for sending the link.

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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