This article is an excerpt from the Shortform book guide to "Poor Economics" by Abhijit V. Banerjee and Esther Duflo. Shortform has the world's best summaries and analyses of books you should be reading.
Like this article? Sign up for a free trial here .
What is Abhijit Banerjee and Esther Duflo’s Poor Economics about? What are the key takeaways to draw from the book?
Poor Economics by Abhijit Banerjee and Esther Duflo sets out to examine the lives of the poor as they actually are. The authors see several key lessons emerging from their analysis of poverty.
Here are four lessons Banerjee and Duflo draw from their analysis.
1. The Poor Need More Information
When it comes to personal or economic decisions, the poor often simply don’t have enough information to make good choices, believe Duflo and Banerjee. To get more information to the poor, it should be delivered in enjoyable formats, such as through song or a funny advertisement, and it should be delivered by sources the poor find credible, like the press or local, trusted people.
(Shortform note: A recent study shows that, in trying to get information to the poor, policymakers should carefully consider the message, the medium, and the messenger. Duflo and a team of researchers conducted a randomized controlled trial in India and the United States to determine the effectiveness of using social media to deliver information directly to the poor. They found that messaging delivered via Facebook worked best when it was presented in simple terms by a celebrity—not by an official appointed as an expert.)
2. The Poor Need Easier Choices
Wealthy people living in wealthy countries have many difficult decisions made for them, which benefits them because they then don’t have the opportunity to make poor decisions, claim Duflo and Banerjee. Their water is purified, their healthcare providers are highly trained and closely regulated, their foods are fortified with key nutrients and regulated to ensure they’re safe, their assets are protected, they have money set aside for the future through Social Security or other financial institutions, and so on.
The poor have none of these things, write the authors. They have to purify their own water, figure out ways to save for the future outside of typical financial institutions, make complicated decisions about their healthcare, and more. Such decisions are difficult for anyone to make, but especially for the poor, who feel the constant pressure of a lack of resources, information, and basic economic security.
Duflo and Banerjee suggest that a practical way to alleviate this pressure is to make these decisions easier for the poor. One way to do this is by ensuring default options are good. If tasty cereals are fortified and made readily available, it’ll be easier for the poor to get critical micronutrients into their diet. Referring to Richard Thaler and Cass Sunstein’s book, Nudge, Banerjee and Duflo propose a second way to make good decisions easier for the poor: Nudge them toward the right choices. For example, savings accounts could be structured to encourage deposits and discourage withdrawals.
3. The Poor Need Innovators and Governments to Build Better Financial Services
Duflo and Banerjee argue that governments, charitable organizations, and private financial groups can and should develop innovative financial services for the poor. Where electronic money transfers have become available, for instance, the poor have more access to funding. Though microcredit financing has its limitations, it has made credit more available to even the poorest people.
In certain situations, the authors believe governments should step in with subsidies or other financial incentives to help provide adequate services to the poor. This applies in cases where free market forces don’t support the development of services the poor need. Health insurance options for the poor, for example, tend to cover only catastrophic events and not preventive care. Duflo and Banerjee argue that in cases like this, the benefits of offering free goods and services—such as bleach or routine check-ups—often outweigh the costs.
———End of Preview———
Like what you just read? Read the rest of the world's best book summary and analysis of Abhijit V. Banerjee and Esther Duflo's "Poor Economics" at Shortform .
Here's what you'll find in our full Poor Economics summary :
- A look at how some people live on less than 99 cents per day
- An analysis of how the poor live and how policy interventions affect their lives
- The four key insights Duflo and Banerjee offer about poverty
