The 2019 Nobel Prize in Economic Sciences was awarded to three economists for their pioneering research into the use of experimental approaches to fight global poverty.
The new Nobel laureates are considered to be instrumental in using randomized controlled trials to test the effectiveness of various policy interventions to alleviate poverty.

Why have Banerjee, Duflo, and Kremer won the Nobel Prize?

The research conducted by this year’s Laureates has considerably improved our ability to fight global poverty, the Nobel citation says.
Their new experiment-based approach has transformed development economics.
In Poor Economics, Banerjee and Duflo bemoaned how the debates on poverty “tend to be fixated on the ‘big questions’: What is the ultimate cause of poverty? How much faith should we place in free markets? Is democracy good for the poor? Does foreign aid have a role to play? And so on”.
Banerjee, Duflo and Kremer, who have been working together since the mid 1990s, are different in that they do not get stuck with the “big questions”.
Instead, they break down a problem, study its different aspects, conduct various experiments and, based on such “evidence”, decide what needs to be done.

Randomized Controlled Trial

A RCT is an experiment that is designed to isolate the influence that a certain intervention or variable has on an outcome or event.
A social science researcher who wants to find the effect that employing more teachers in schools has on children’s learning outcomes, for instance, can conduct a randomized controlled trial to find the answer.
The Nobel laureates’ trio applied RCT to the field of economics beginning in the 1990s.
Kremer first used the technique to study the impact that free meals and books had on learning in Kenyan schools.
Banerjee and Ms. Duflo later conducted similar experiments in India and further popularized RCTs through their book Poor Economics, published in 2011.

A small testimony

Esther Duflo, along with Raghav Chattopadhyay, did an outstanding study of India’s decision to reserve some of the leadership of local governments — village panchayats — for women.
Since the choice of which seats are to be reserved for women is done by lottery in India, since 1993, following a constitutional amendment, this turned out to be a perfect setting for studying how the election of women leaders could affect economic well-being in the locality.
By studying a massive data set from West Bengal and Rajasthan, they proved that the provision of local public goods, like water supply, improves in statistically significant ways in villages where women are elected to lead.
Likewise, Michael Kremer’s research, done with Ted Miguel, on what de-worming in schools in Kenya could do for child health and absenteeism of school students was quite remarkable.
By doing a massive randomised controlled study, they showed that benefits of deworming could be staggering, way beyond the costs of such an intervention.

How does this approach work in practice?

Breaking down the poverty problem and focussing on the smaller issues such as “how best to fix diarrhoea or dengue” yielded some very surprising results.
For instance, it is often believed that many poor countries (like India) do not have the resources to adequately provide education, and that this resource crunch is the reason why school-going children do not learn more.
But their field experiments showed that lack of resources is not the primary problem.
In fact, studies showed that neither providing more textbooks nor free school meals improved learning outcomes.
Instead, as was brought out in schools in Mumbai and Vadodara, the biggest problem is that teaching is not sufficiently adapted to the pupils’ needs.
In other words, providing teaching assistants to the weakest students was a far more effective way of improving education in the short to medium term.
Similarly, on tackling teacher absenteeism, what worked better was to employ them on short-term contracts (which could be extended if they showed good results) instead of having fewer students per “permanent” teacher, in order to reduce the burden on teachers and incentivise them to teach.

Why is RCT so popular?

At any point in time, there are multiple factors that work in tandem to influence various social events.
RCTs allow economists and other social science researchers to isolate the individual impact that a certain factor alone has on the overall event.
For instance, to measure the impact that hiring more teachers can have on children’s learning, researchers must control for the effect that other factors such as intelligence, nutrition, climate, economic and social status etc., which may also influence learning outcomes to various degrees, have on the final event.
RCTs promise to overcome this problem through the use of randomly picked samples.

Significance

Many development economists believe that RCTs can help governments to find, in a thoroughly scientific way, the most potent policy measures that could help end poverty rapidly.
Research done by Abhijit, Esther and Michael has transformed the way development economics is practised nowadays, not just in United States but the world over.

Criticisms of RCT

A popular critic of randomized controlled trials is economist Angus Deaton, who won the economics Nobel Prize in 2015.
He has contended in his works that simply choosing samples for an RCT experiment in a random manner does not really make these samples identical in their many characteristics.
While two randomly chosen samples might turn out to be similar in some cases, he argued, there are greater chances that most samples are not really similar to each other.
RCTs are more suited for research in the physical sciences where it may be easier to carry out controlled experiments.
More fundamentally, RCTs do not guarantee if something that worked in Kerala will work in Bihar, or if something that worked for a small group will also work at scale.
This Nobel, albeit indirectly, for RCTs will likely stoke this debate again.

References

https://finshots.in/archive/abhijeet-banerjee-nobel-prize/

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