Archive for July 3rd, 2007

Avinash Dixit: an economist with a sense of humour

July 3, 2007

For the uninitiated this Mumbai born economist teaches at Princeton University and every year is a leading contender for the Nobel. His earlier work was on International trade but now has focused on the most controversial topic- How does development happen.

To be honest, I never read his work. Thanks to RBI, which invited him this year for the Second P. R. Brahmananda Memorial Lecture where he gave a wonderful speech on Institutions and Development. He has an amazing sense of humor. See this for a sample:

During my visits to many government offices to get various documents and permissions to travel, entry to almost any office required me to give an authorization signature from C. D. Deshmukh to the chaprasi guarding the door. Mr. Deshmukh had been the Governor of the Reserve Bank and Union Finance Minister, and in one of these capacities, his signature appeared on the ten-rupee note. I am sure this practice continues even now in many government offices. The denomination of the required note has surely risen many times, and the chaprasis are probably now called the Site Security Officers.

It deserves a LOL!! ūüôāThe speech is a highly rated one and has some super ideas and instances on property rights and institutions. He covers areas like contract enforcement and looks at both informal and formal mechanisms of contract enforcement. I can go on and cover his speech but what I wish to cover is something slightly different. So please read it.

I just did some research and discovered a write-up on the economist in HT Mint from where I got to know of a speech he had given in World Bank which got me interested as it says what I have been wondering all along- which path should one take for development?

The speech is here and is a must read for all the people wanting to understand most of the recent the perspectives on “What drives development” in just 29 pages of humor and wit. Let me begin with where he ends to interest the reader:

Faced with all these contradictions and shifts, I can identify only one consistently valid policy prescription. It is the quality Napoleon valued most in his generals, namely luck. Researchers want to identify causes, and practitioners want to know what they can choose and change; therefore both sides may have neglected the important role that luck has played in many countries’ development successes or failures. Easterly (2001, chapter 10) is rare among economists in giving luck a substantial role and discussing it in considerable detail.

He presents a challenge to the dev eco people:

I am deliberately going to be provocative and critical, but will try to be evenhandedly so. I hope that my remarks will give everyone some incentive to think further and harder. I also hope to help scholarly researchers better see their own work in the context of the bigger picture, and help practitioners better appreciate the difficulties of drawing implications for action from an ongoing process of academic exchange

.…….Even within these confines, the literature is huge, and I cannot hope to include even a substantial fraction of it in the space and time available. However, those left out should be relieved, not upset: the policy recipes that emerge from this¬†iterature are almost invariably unsatisfactory, so being omitted from the list and the implied criticism, however friendly and constructive, may perhaps be regarded as a¬†good thing.

He adds that development literature falls short as:

1. Some of the work finds that development success depends upon historic or geographic preconditions that most countries may not have. So all one can do is curse itself.

2. A wide amount of literature is available on what leads to development from very well-known/well-endowed economists but each policy prescription has a contrasting view from equally well-known/well-endowed economists.

3. As and when countries grow, its model is studied and prescribed. It was Japan first, then East Asian Tigers, now Brics. What is next?

4. The prescriptions (he calls them recipes) that look good in theory fall short when practiced, e.g. build institutions, build democracy etc. How to build them?

He uses a lot of humour. He calls the recipes as:

1. Irish recipe or the infeasible ones: For instance research shows that what matters is which kind of colonialism¬†the country was under. Those under British learnt English, had common law system and thus had better capital markets. So what can be done? In AD’s words:

Interpreted literally as recipes or policy recommendations, these require a less developed country to use plate tectonics to move itself to a more favorable location, or to turn the clock back and invite British colonizers, of course cleaning up the local disease environment and getting rid of mineral resources beforehand.

2. Dr. Dolittle Recipes: Those that have contradictions. For instance what works- Democracy or Authoritarianism? Formal or Informal governance institutions? Comprehensive and rapid or sequential and gradual reforms? AD points out many a popularly cited literature to show that there are contradictions everywhere.

Finally you are confused and he also asks the question which I often ask: If I were a minister/policy maker where do I begin?

Suppose you are the Minister for the Economy in an authoritarian regime. You read the writings of Rodrik and others about the virtues of democracy, and are thrilled by the thought of having this “meta-institution” that harnesses “local knowledge” in your country. What do you do? Of course, if you are the Minister for the Army in a democracy and are convinced by the pro-authoritarianism arguments, your may find it a little bit easier to implement your favored institutional reform!

However, the Napoleon Prescription (explained above) takes the cake.

Read this final humour piece where he is looking at importance of property rights and cites from De Soto’s famous book:

As I strolled through rice fields [in Bali], I had no idea where the property boundaries were. But the dogs knew. Every time I crossed from one farm to another, a different dog barked. Those Indonesian dogs may have been ignorant of the formal law, but they were positive about which assets their masters controlled.” So officials who wanted to set up a formal property system could “by traveling their citystreets and countryside and listening to the barking dogs, ‚Ķ gradually work upward.

In the end he offers a different recipe for development, which looks at a schematic table that lists all the causes and effects of various policy measures along with prior probabilities of the event happening. However, it is just a concept and needs to be expanded. I need to look at other papers of his/others who have worked out his schema.

Highly Recommended!!

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Great expectations and greater determination

July 3, 2007

In the last 4 days, I saw some super sporting stuff. It was a mix of both great expectations and greater determination. Let me begin with tennis first.

Y’day in Wimbledon, ¬†Serena Williams played a super 4th round match against¬†Daniela Hantuchova. Serena was down 5-2 in 2nd set and then made it 5-5 only to get massive cramps on her left leg. She could barely stand and for a person as fit as her to start crying must be a lot of pain.

She nevertheless did and managed to win her service game and the score was 6-6. Actually it was getting cloudy and rains could have come. Any other person would have quit but not Serena who stood and hoped rains to come. The rain gods did smile on her when the score was 4-2 in the tiebreak with Hantuchova leading.

SW came back, lost the 2nd set 7-6 and won the third set 6-2. It was an amazing display of determination amidst huge expectations. 

She said at the end of the match in press conference- I would have died for victory. You showed that SW…keep going.

Now Cricket.

After a long wait I can write on Sachin Tendulkar. I think has gone through a lot and has some determination to show he has some cricket left in him. After his super run in Ireland, he seems to be making a comeback of sorts despite all criticisms. It is too early to say whether he is back to his old-self but I have a different point to make. Apurv has a nice piece on the same.

ST has always carried enormous pressure on him rather too well till recently.¬† He couldn’t perform as consistently as he used to, which only showed he is human more than anything else. Sachin is always criticised for- not contributing much to India’s wins, way beyond his prime, etc etc.¬†¬†

I however beg to differ. Statistics isn’t the only way of looking at things. As we learnt earlier, despite conventional thinking, financial globalisation isn’t beneficial when we look at the impact of capital flows on economic development. But as the authors pointed out it is indirect¬†benefits (they call it collateral benefits) of financial globalization which is more beneficial- development of institutions, financial systems, better macro policies etc. ¬†

Similarly, statistically Sachin’s record may not be as good as I would want it to be, but he has¬†had a much well-rounded¬†indirect effect on development and popularity of the game. Since, he started opening in ODIs against NZ on 27 Mar 1994, he has carried the hopes of the entire nation on his shoulders. Not just that, with top Indian cricketers embroiled in match fixing controversies, little support from the other players, he has performed time in time again. And he has been very consistent if you look at his career graph.

What are the indirect benefits? Well, India drives the entire revenues of the cricketing world and a dip in popularity of the game in India leads to huge losses for everybody associated with the game. The recent world cup is the recent and the best example of this.

So, for cricket to develop and continue to be popular, it is important Indian population is hooked to the game. And they would develop interest only if India continues to perform and that is what Sachin promised and delivered. People watched cricket as long as he was batting as there was hope. I am sure he would have many a matches for India if he got consistent support from the rest of the team. If it had not been Sachin, Indian cricket would have been like Indian hockey long time back. With Sachin not able to perform, we can see Indian cricket on the downhill.

It is sad that we don’t give this man the due he deserves. He has done much more for cricket than it shows in statistics. How much he loves the game and how much he wants to perform is shown by the fact that he is still there fighting all odds. I just wish he gets some good scores ahead, wins some matches for India¬†and retires on a high.¬†¬†He needs all the luck and support for his contribution to cricket. Keep going ST.

Assorted Links

July 3, 2007

1. Acemoglu has a latest paper on the hot topic РInequality. Should be a good read as most of his papers are. Thanks to both, Marginal Revolution and WSJ Blog for the pointer.

2. WSJ points out to a superb study which calculates how much one has to pay for filling the full tank of Honda Civic. Venezuela pays $ 1.45 compared to Turkey which pays about $ 94 !! The study is here.

3. An excellent post by James Hamilton in econbrowser on CDOs.

4. A new report on Microfinance.


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