1 the alchemist of the poor 2 “erik thorbecke, the alchemist of the poor” a short retirement...
TRANSCRIPT
1
THE ALCHEMIST OF THE POOR
2
“ERIK THORBECKE,THE ALCHEMIST OF THE
POOR”
A SHORT RETIREMENT TALEBY
ALAIN DE JANVRY AND ELISABETH SADOULET
DEDICATED TO ERIK ON BEHALF OF NEUDCIN
ADMIRATION AND FRIENDSHIP
3
DEFINITIONS
DEVELOPMENT ALCHEMIST :
“AN ECONOMIST WITH MAGIC POWERS OF TRANSMUTATION OF POVERTY INTO
WEALTH”
ALCHEMIST:
“A PERSON WITH MAGIC POWERS OF TRANSMUTATION OF BASE METALS INTO
GOLD”
4
PART I
LEARNING FROM THE ALCHEMIST
HOW TO MANAGE POVERTY
ERADICATION PROGRAMS?
5
THE ALCHEMIST’S SECRETS:
ERIK’S FIRST PRINCIPLE OF ALCHEMY
INTRODUCE
P2-BASED WELFARE BUDGETS
IN NATIONAL CONSTITUTIONS
6
1999 MEXICAN CONSTITUTION
CHAPTER V, ARTICLE 34
“CENTRAL GOVERNMENT TRANSFERS WILL BE
ALLOCATED ACCORDING
TO THE SEVERITY OF POVERTY”
(THE FGT-P2 CRITERION AT WORK)
7
SIMULATION EXERCISE:
WHAT WOULD A P2-BASED WELFARE
PROGRAM DO
TO THE MEXICAN POOR?
8Po = 50%. Source: INEGI data, 1995
Poverty profile Mexico
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
9
10
P1.1 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
11
P1.2 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
12
P1.3 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
13
P1.5 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
14
P1.75 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
15
It’s too expensive!
16
P1.75 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
17
P1.5 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
18
P1.3 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
19
It’s in the constitution!!
20
P1.5 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
21
P2 welfare program
0
500
1000
1500
2000
2500
3000
0 20 40 60 80 100
% of population
22
ALCHEMIST’S OUTCOME OF THE P2-BASED WELFARE PROGRAM
INITIAL Po = 50%
CURRENT Po = 0%
88% OF THE FORMER POOR ARE NOW RICHER THAN THE 2% RICHEST IN THE COUNTRY
23
ERIK’S SECOND PRINCIPLE OF ALCHEMY
“USE SAM PATHS MULTIPLIERS TO INCREASE
THE INCOME OF THE POOR”
24
NET GAIN FOR THE POOR $100
Governmenttax
$100
Income ofthe poor
$100
25
NET GAIN FOR THE POOR $150
Governmenttax
$100
Income ofthe poor
$150
Consumptionexpenditures
Production
Factorincomes
SAM multipliers
26
NET GAIN FOR THE POOR $50
Governmenttax
$100
Income ofthe poor
$50
Alchemist trick multiplierRECYCLE $100
27
NET GAIN FOR THE POOR $200
Governmenttax
$100
Income ofthe poor
$200
Consumptionexpenditures
Production
Factorincomes
SAM multipliers
Alchemist trick multiplier
28
NET GAIN FOR THE POOR $250
Governmenttax
$100
Income ofthe poor
$250
Consumptionexpenditures
Production
Factorincomes
SAM multipliers
Alchemist trick multiplier
29
NET GAIN FOR THE POOR $300
Governmenttax
$100
Income ofthe poor
$300
Consumptionexpenditures
Production
Factorincomes
SAM multipliers
Alchemist trick multiplier
30
NET GAIN FOR THE POOR $$$$
Governmenttax
$100
Income ofthe poor
$$$$
Consumptionexpenditures
Production
Factorincomes
SAM multipliers
Alchemist trick multiplier
31
ALCHEMIST’S OUTCOME OF SAM
MULTIPLIER-BASED WELFARE PROGRAM
AFTER ∞ NUMBER OF ITERATIONS
THE POOR HAVE BECOME ∞-TELY RICH
32
PART II
THE ALCHEMIST’S FUTURE
SOLVE THE ALCHEMIST’S RETIREMENT PROBLEM
33
PROBLEM:
REBALANCING OF ACTIVITIES UNDER
FULL INCOME CONSTRAINT
34
• CHARLA AND GRANDCHILDREN• TENNIS• MANAGE CALIFORNIA HOMESTEAD WITH
MILLENARIAN SEQUOIAS• COOPERATE WITH DEVELOPMENT ECONOMISTS
AT U.C . BERKELEY ALMA MATER• MORE TENNIS• CONNECT WITH ROOTS IN DUTCH HISTORY• VISIT FORMER STUDENTS AROUND THE WORLD• VOLUNTEER TIME FOR DEPARTMENTAL
ADMINISTRATION (!!!)• MORE MORE TENNIS• MORE TIME TO RESEARCH
OPTIONS FOR TIME REALLOCATION?
35
ASSUME THE SOLUTION: MORE TIME TO RESEARCH
ERIK’S THREE MAIN RESEARCH AREAS:
1. ECONOMY-WIDE MODELING IN SAM-CGE
2. INSTITUTIONS AND MARKET CONFIGURATIONS
3. POVERTY INDICATORS AND STRATEGIES
36
PART III
MAKE GRATUITOUS
SUGGESTIONS
FOR RESEARCH AGENDA
IN EACH AREA
37
AREA 1 ECONOMY-WIDE MODELING IN SAM-CGE
ERIK’S WORK: IMPORTANT POLICY QUESTIONS IN GENERAL EQUILIBRIUM FRAMEWORK.
NEW CHALLENGE: CGIAR problem. How to optimize the use of agricultural technology to reduce poverty through direct and indirect effects?
Direct effects: benefits for poor adopters
Indirect effects: benefits to poor else than adopter through:- Price of food- Employment creation in agriculture- Growth linkages
38
IMPORTANCE OF PROBLEM
CGIAR:
16 INTERNATIONAL CENTERS (IFPRI, ETC.)1300 SCIENTISTS
US$350 MILLION/YEARDID THE GREEN REVOLUTION
REFOCUSING FROM COMMODITIES TO POVERTY
HOW DO? WHAT TECHNOLOGY FOR WHOM?
39
Technological change inagriculture
Africa Asia Latin America
Main Po reducingmechanism
Direct Indirect Indirect
Source of Po reduction TFP in smallfarms
Employmentcreation in ag.
Lower foodprices
Main gainers Peasants Landless Urban poor
Best technological optionto reduce Po
High value addedcrops for small
farmers
Labor intensiveagriculture
Food crops inlarge farmers
PRELIMINARY RESULTS SAM-CGE
40
AREA 2
INSTITUTIONS AND MARKET CONFIGURATIONS
ERIK’S WORK:
MARKET/NON-MARKET TYPES OFCONFIGURATIONS ---------------> TRANSACTIONS (EXOGENOUS) (ENDOGENOUS)
Transactions costs: Household market integration:Observables (surveys) Seller, buyer, self-sufficient; Non-observables? Supply and demand responses.
41
FUNDAMENTAL CONTRIBUTION TO THE NEW INSTITUTIONAL ECONOMICS
MEASURE THE MAGNITUDE OF TRANSACTIONS COSTS
EVEN THOUGH THEY ARE LARGELY UNOBSERVABLE
42
PROPOSITION:
OBSERVE HOUSEHOLD BEHAVIOR AS PRODUCERS AND CONSUMERS UNDER
TRANSACTIONS COSTS (TRANSACTION)
INFER FROM THIS WHAT ARE THE UNDERLYING TRANSACTIONS COSTS
(CONFIGURATION)
43
STRATEGY TO MEASURE TRANSACTIONS COSTS
Proportional transactions costs (PTC) in selling and buying:
Effective price paid for purchase
Effective price received for sale Fixed transactions costs (FTC) in entering and exiting markets:
tps,tp
b
tfs,tf
b
pm+tpb
pm - tps
44
D p
m
( )
S p
m
( )
/ Supply w o TC
Market price p
m
Quantity
S&D FOR STAPLE FOOD. NO TC
45
Market price p
m
Quantity
Supply with PTC
S p
m
- tp
s
( )
S&D WITH PTC IN SELLING
46
Market price p
m
Quantity
Net sellers
Net buyers
p
*
+ tp
s
p
*
- tp
b
S&D WITH PTC IN SELLING & BUYING
47
Market price p
m
Quantity
Net sellers
Net buyers
Self-sufficient
p
*
+ tp
s
p
*
- tp
b
p
*
S&D: THREE MARKET INTEGRATION REGIMES
48
Market price p
m
Quantity
p
s
Minimum sale to cover FTC
S&D WITH PTC AND FTC FOR SELLER: THRESHOLD
49
Quantity
Market price p
m
S WITH PTC & FTC IN SELLING AND BUYING
50
s
s
(
s
Market price p
m
Quantity
p
*
+ tp
s
∑p
V
*
= V p - tp
s
, y - tf
s
)
Proportional TC
Fixed TC
S p
m
- tp
s
( )
S
*S
ESTIMATE: CENSORED SUPPLYTHRESHOLD QUANTITY FOR SELLERSUPPLY FOR SELF-SUFFICIENT.
51
ESTIMATION OF PTC
FROM NON-LINEAR SEGMENT OF CENSORED SUPPLY:
ˆ t ps =zs ˆ b p
s
lnqs =b ln pm - tps
( ) =b ln pm - zsbps
( )
52
ESTIMATION OF FTC
SOLVE FOR
IN EQUIVALENT VARIATION FOR EQUALITY OF UTILITY OF BEING IN SELF-SUFFICIENCY OR IN MARKET AT ENTRY THRESHOLD:
tfs
V* p*,y[ ]=V ps - tps,y - t f
s[ ]
53
AREA 3: POVERTY INDICATORS
ERIK’S WORK: CELEBRATED FGT INDICATOR OF SEVERITY OF POVERTY
P2 =1n
z- yi
zÊ Ë Á
ˆ ¯ ˜
2
i =1
qÂ
WHY P SQUARED?
WHY NOT 1.5 OR 3?
DOES 2 OVER OR UNDER ESTIMATE THE WELFARE COST OF INCOME DEFICITS?
54
PROPOSITION:
USE Pu AS ALTERNATIVE TO P2
Pu MEASURES THE UTILITY LOSS DUE TO THE INCOME DEFICIT.
V = INDIRECT UTILITY FUNCTION
Pu =1n
V z( )- V yi( )
V z( )i =1
qÂ
55
UTILITARIAN APPROACH TO THE MEASUREMENTOF Pu
ASSUME A PARAMETRIC FORM OF V.
V SAME FOR ALL HOUSEHOLDS, BUT FUNCTIONOF HOUSEHOLD CHARACTERISTICS.
USE BACKWARD INTEGRATION:
ESTIMATE DEMAND FUNCTIONS;
RECOVER THE PARAMETERS OF V
56
SPECIAL CASE
IF UTILITY IS SEPARABLE IN AGGREGATES
CAN RECOVER V FROM A SINGLE DEMAND
EQUATION, e.g., FOOD
EXAMPLE
INDIRECT ADDILOG V APPLIED TO MEXICAN HOUSEHOLD FOOD CONSUMPTION AND
EXPENDITURE DATA
57
WEIGHTS OF INCOME DEFICIT
IN P1: WEIGHT = 1. CONSTANT
IN P2: WEIGHT = LINEAR IN y
IN Pu: WEIGHT EXPONENTIAL IN y
z- yz
Ê Ë Á
ˆ ¯ ˜
z- yz
Ê Ë Á
ˆ ¯ ˜
58
WEIGHTS OF INCOME DEFICIT
P-CLASS INDICATORS MEXICO
y = 5.9452x -0.6801
0
0.05
0.1
0.15
0.2
0.25
0.3
0 200 400 600 800 1000
Household income
P1P2PuPower (Pu)
Poverty line
59
CONCLUSION:
SQUARE IS NOT ENOUGH!
(IN THIS CASE)
NEED USE HIGHER EXPONENTIAL (OR
OTHER FUNCTIONAL FORM) TO
CAPTURE THE SEVERITY OF POVERTY
AS A WELFARE LOSS
60
RETIREMENT TALE
EPILOGUE
61
AS ANOTHER ALCHEMIST (IN PAULO COELHO) SAID:
“TO REALIZE ONE’S DESTINY IS A PERSON’S ONLY OBLIGATION”
AS DEVELOPMENT ECONOMISTS (OUR DESTINY), THIS GIVES US QUITE A CHORE TO DO!
AS A DEVELOPMENT ALCHEMIST, YOU GAVE US A MAGNIFICENT ROLE MODEL TO EMULATE.
62
WE THANK YOU FOR THIS
AND WISH YOU
SUCCESS AND HAPPINESS
IN YOUR NEW TIME ALLOCATION SOLUTION
THE END