The holy grail of development is a resource that explains why the West has grown so far ahead of the rest of the world in terms of income per worker and productivity. Hernando De Soto makes a good case in The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else that property rights are one of the main reasons why the West has gone so far ahead of other countries. Every neighborhood in the world has property rights, in the sense that if I build a shack or house, the neighbors agree that it’s mine and that the space is mine. But only in the West are the property rights likely to be registered with the government, and the owner of the property able to use his land or house as collateral to secure credit from banks or strangers (people who are not family or friends, in other words).

To start a legal business, or establish a formal claim to property, is an onerous process in most Third World economies. For example, in India, “about 90 percent of land titles are unclear as to who actually owns the land…[this] causes competition among real estate developers to be over finding and acquiring land with clear titles rather than over construction productivity,” according to William Lewis. Apart from explaining, for example, the number of megastores and car dealerships I’ve seen in low-traffic locales, this can explain why it’s so hard to get growth; there are a number of problems that arise when your property is on land that you don’t own. You can’t get credit, because it’s hard to use land as collateral when you don’t own it (and the bank probably can’t sell it either). When you might not be able to sell your property for very much, and the government could kick you out at any point, then you don’t have a huge incentive to make lasting improvements, either.

The poor around the world own a surprising amount of capital; according to one estimate, the world’s poor collectively own $9 trillion in assets, between the land they own, the improvements they’ve made on the land and their savings. The problem is that in the absence of a formal system of property rights that’s consistent across the country, they’re unable to leverage that capital in a meaningful way.

Most attempts to establish systems of property rights have failed, because of fears from entrenched parties (lawyers, the rich, special interests) about change. In Peru, De Soto’s country of specialty, the government’s tried to provide property rights to the poor on multiple occasions, and failed to help the poor in any meaningful way; sometimes the problem was in implementation and sometimes the rich hired lawyers to subvert the system and claim land that wasn’t theirs. Governments have spent billions on GPS and mapping technology, without making it any easier for the poor to own the land on which they sit; America managed to integrate property by 1900 without any of that technology.

Businesses and squatters face tradeoffs; De Soto argues that many of them would like to become legal, but the costs of doing so in some countries are so high (sometimes requiring 200 steps and as many as 15 years) that most small businesses have no choice but to operate outside the law. In Peru De Soto set up a simple alternate registration system for businesses, and generated $1.2 billion in revenue for the government, by making it easier to become legal (and enjoy all of the protections of a working legal system).

Capitalism, to many of the entrepreneurial poor around the world, is a series of stupefying laws, and necessary innovations to create agreements in the absence of any recognition or protection from the government. In the absence of a functional legal system, the poor in every part of the world have their own arrangements for assigning property. De Soto gives the example of walking through a field in Indonesia, where he could tell who owned the land because a different dog would bark at him when he crossed an invisible property line. The key for governments is to transform those extralegal agreements into formal agreements that foster trust and capital generation among the poor.

This is one of a few projects I am working on at the moment.

Connecting Rural Teenagers with High-Paying Jobs

Kevin Burke, Seva Mandir

The problem

The first step on the economic ladder for most citizens is a job requiring skills slightly more advanced than day labor. For rural villagers, the economic and personal returns on these jobs are quite high; workers may be able to get a high-paying job without having to migrate to Gujarat, for example. Seva Mandir, in partnership with Ajeevika Bureau, offers trainings in areas like plumbing, electrician, auto repair, stitching etc. but take-up for these courses is low.

The goal

The goal is to investigate the reasons why take-up is low, and after a field survey has been completed, to propose solutions or possible training modules to increase take-up among rural teenagers.

Implementation

A)   Get information from Abhay (Seva Mandir employee), members of Ajeevika Bureau (training organization) to estimate the education level, amount of training, job opportunities and pay schedule for various possible jobs like plumbing, auto repair, etc. Research Government of India statistics on the average salary for a worker with no primary education, a worker with primary, secondary, and a high school degree.

B)   Conduct field surveys in 8 villages. The goal is to conduct 15 surveys per day, and 30 surveys per town. Visiting two towns per week will allow us to complete the survey portion of the study in 4 weeks.

C)   Analyze data

D)   Propose solutions/possible randomized experiment

Tentative Hypotheses

1)    Some workers do not sign up because have the required skills to even sign up for a 2 month training course. There is no quick fix for this problem.

2)    Workers are credit constrained; to sign up for trainings they would have to forgo two months worth of wages and possibly pay part of the cost of the training. Loans are one possible solution, although collecting the loans has been tough; there’s no easy source of collateral to secure the loan.

3)    Workers do not properly estimate the returns to education, or the possible salary in a city job. If their internal estimates of future pay are too low, then they would not sign up for training or education that has a high present cost. Fortunately, Trang Nguyen (2008) found a quick solution to this problem; hold a meeting and display the statistics about how much a 25-year old can make in various professions and with various education levels. She used a graphic with bags of rice; no primary education means avg. pay is 3 bags of rice, a primary education means 6, etc. After the intervention the local people estimated the return to education correctly and their test scores improved.

4)    The teenagers possess the skills but have difficulty applying for available jobs, or there are not jobs available.

5)    Workers are not aware of the Seva Mandir training programs.

We will test these hypotheses in the survey, and propose an appropriate course of action.

Today I popped all of the keys off of my laptop keyboard and rearranged them in the QWERTY format. In the name of efficiency, I switched my keyboard to the Dvorak system during my sophomore year of high school. It only took about a week and a half to learn how to use it at full speed, and I’ve been using it ever since.

I haven’t measured whether I type faster using QWERTY or Dvorak, and from what I’ve heard, studies don’t really show any improvement in typing speed. I would guess that I type faster in Dvorak, although it’s been several years since I’ve typed any long document in QWERTY still use Dvorak. The keyboard shortcuts with Dvorak are also in generally better positions, especially the close window and quit application commands (Apple-W and Apple-Q, respectively).

The small gain from typing with Dvorak, though, is outweighed by the tedium of explaining to everyone who peeks over my shoulder why my keyboard is funky. Telling people that my laptop was assembled at a facility that provides jobs to the mentally retarded got old quickly. It’s also frustrating for people who want to borrow my laptop and are not used to looking away from the keys.

If everyone used a Dvorak keyboard, we all would be slightly better off, but the cost of switching (alternate keyboard layouts, retraining, reprogramming old machines, etc) probably outweighs the productivity gain.

I’m able to type without looking at the keys in both Dvorak and QWERTY layouts. The feeling of switching between the two layouts is very interesting, and I’m not sure how to describe it. It’s unlike language, where you would never make the mistake of responding to a Frenchman in English on purpose; many times on public keyboards I start typing in Dvorak, then erase the keys and flip a switch in my head so the words show up correctly.

In and around downtown Udaipur, you run into clusters of merchants selling exactly the same thing. There’s a block with ten pharmacies in a row, all selling roughly the same goods and another block with five banks in a row. In Delhi Gate, there are about twenty women sitting next to each other who all sell flowers. Hotelling’s law says that on a 2-dimensional street with two shops, they will rationally converge at the middle. And I remember reading somewhere that McDonald’s spent a ton of money figuring out the ideal locations for its stores, and Burger King just built a restaurant wherever there was a McDonald’s. But with ten shops all in a row, common sense says a shop in the middle of the row could make more money by moving to the end, or to a different part of town. I can think of a few reasons:

1) The shop-owners all purchase from the same distributor. Perhaps they get a discount by purchasing together.
2) Maybe everyone in Udaipur knows the place to go for flowers or pharmaceutical drugs and so there’s a big market in that particular location. This is similar to the distribution of car dealers in the US. However, car dealers sell differentiable products and you can find pharmacies and flower sellers regularly in other parts of town.
3) Everyone in Udaipur knows everyone else, so buyers spread out their purchases between sellers. The sellers are selling indistinguishable products so it’s hard to stand out as the best.
4) The sellers are colluding and sharing profits. That, or the margins would be low anyway and they enjoy each other’s company.
5) Flowers, drugs and banks are just a front for some kind of illegal business. Not likely as cultural norms against alcohol, gambling and prostitution are quite strong.
6) Peculiar zoning laws mean that pharmacies/banks that set up in a specific spot got a special tax break. I have heard as well that in India the laws favor small businesses, opposed to big business.
7) I hesitate but maybe the sellers have a weak grasp of business concepts, or lack the desire to make higher profits for whatever reason.

5, 6, and 7 are particularly unlikely, and 1 and 4 are the most likely, None of the arguments here are particularly persuasive. Hotelling’s law may be more powerful than I thought. I will investigate further.

Eric Barker links to a paper showing that good experiences become more pleasurable (and bad experiences less pleasurable) when they are interrupted.

Showering in India means filling a bucket with (thankfully) hot water and scooping it over your head, pausing to rub in shampoo and soap. It isn’t that bad, probably in large part because of the effect stated above. Each scoop of hot water is a mini-rush of relief.

I am wondering whether user control has an effect. For instance, interrupting the flow of a continuous tap may make the experience more pleasurable but you also may get annoyed with yourself for not leaving the tap on all the time. Constructing an unreliable faucet, that would stay on between ten and twenty seconds and shut off at random intervals of one to five seconds, so that the water is running around 75% of the time, would lead to the optimal showering experience.

This suggests we could probably have a better experience surfing the Web if we turned it off for minutes or hours at a time, and also suggests that kicking a drug addiction would be extremely difficult.

In an attempt to fight corruption, a local NGO in Chennai has begun to print zero-rupee bills. When public officials demand a bribe in exchange for a service, the people hand over a zero-rupee bill as a protest against petty bribery and corruption. The bills have proven so popular that the NGO has had to make a second, much bigger printing run of the bills.
Currently, everyone pays bribes and the people are worse off, overall and relative to the government officials. If I want to protest and choose not to pay a bribe, the government official will laugh in my face. Everyone else is paying bribes, so he doesn’t really need my money. Thousands of individuals face this scenario, and all choose to pay the bribe.
However, the popularity of the zero-rupee bill movement allows the people to coordinate and collectively pay zero bribes to the government officials. Because the movement is popular, and because many bills have been printed, I can confidently choose not to pay the bribe because I know that there are many other people also choosing not to pay.
The success of the movement depends on the incentives of the government officials. At the beginning of the movement, government officials will process no papers, and do no work, without bribes. If the officials can be fired for doing no work, then surely they will eventually begin to perform their job functions without the customary baksheesh, and everyone will be better off. However, if the officials’ job security is not related to the amount of service that they provide, then this movement may lead to the total shutdown of government, which may or may not be a good thing.
Evidence exists for each possible direction. In negotiations, the general principle is that the side that has more patience will win. China, for example, was willing to wait one hundred years to receive control of Hong Kong. The public officials are probably unionized, and as members of government, their jobs are probably hardly dependent on the amount of work that they do. In other words, they will have little incentive to continue doing work in the absence of petty bribes.
In 2005, a group of economists from MIT was approached by the Rajasthan police department, who wanted to improve both their performance and the perception of the police among members of the public. The team implemented a few changes, including a three-day communication and public relation training module, a work-rotation schedule where every police member took turns doing different jobs within the station, and community observation, where community members were invited to sit in the station in three-hour shifts, to facilitate communication and improved performance. These interventions led to a reduction in the number of people who reported fear of the police, and an increased feeling on the part of crime victims (and criminals) that they were being treated fairly (read the project summary here).
One interesting finding from this survey was that the rank-and-file police felt underappreciated, overworked and victims of manipulation by their superiors. These feelings may lead them to seek bribes from the public. This zero-rupee movement may in turn lead them to try and effect change within their institution, rather than trying to pass on their hurt feelings to rank-and-file members of the community.
On the other hand, the Rajasthan reform project was initiated by leaders within the police unit, who cooperated with the proposed reforms. The zero-rupee movement was initiated by members of the public and may lack support from the bureaucratic elite. I am doubtful the movement will have lasting positive effects, but I would love to be proven wrong.

My first article is up at CMC Forum.

Posting for the next three months will be sporadic. I am not reading nearly as much as I usually do.

Continental had an excellent movie selection: I watched The French Connection, The Informant!, Bonnie & Clyde, Breakfast at Tiffany’s, All the President’s Men, and Gladiator. Here’s the final scene from Breakfast at Tiffany’s:

Notice how she only becomes interested in him after he stops his sycophantic behavior and walks away. Also notice that she’s not at all interested in him until she gets turned down by a richer man. Neither of these suggest the relationship is going to last long.

Exaggerated goodbyes are a way to show that you care. In the old days there was a significant chance that you would never see that person again. But as far as I’m concerned, a far better signal is the one you show me every day, doing any of the things friends do for each other. I know how much you care about me and hopefully you know how much I care about you.

Are interviews a good way of sorting the wheat from the chaff? Interviews reward those people who are good at telling short vignettes, who know what they want to do 5 years from now, those who are good at looking comfortable, those who can think on their feet, and those who can articulate the qualities about themselves that are desirable to an employer (and those who look comfortable). Maybe these qualities correlate to job success but I am not sure; as Schmidt and Hunter find, work sample tests are the most accurate predictor of job success. Two types of people do well in interviews; the good candidates who will practice interviewing and prepare answers and those who are natural speakers.

Should taking some time to think of an answer help or hurt your image in the interviewer’s eyes? Responding quickly signals confidence, and intelligence. While I expect the interviewers at most firms to attempt to overcome this quick-response bias they might not do so. Responding quickly means you might not have thought the answer all the way through, especially to a difficult question. On the other hand if the applicant pool is large and the number of acceptances small, the best candidates will be able to respond to the question at hand accurately and quickly.

You are not expected to be honest in interviews. “I want this job because it pays very well” or “I want this job because it will give me high status” are not acceptable answers.