Experts from international institutions such as the World Bank, the University of Oxford and King’s College London discussed poverty and development in the framework of a meeting organized in Madrid by the Navarra Center for International Development (NCID) of the Institute Culture and Society at the University Of Navarra and the Ramón Areces Foundation.

The afternoon sessions began with a lecture on "Knowing (Your) Well: An Evaluation of Alternative Strategies to Increase Demand for and Responses to Information on Arsenic-contaminated Tubewell Water in Bangladesh,” given by Alessandro Tarozzi of the Universitat Pompeu Fabra.

According to the researcher, a lack of reliable information on environmental risk is often a key constraint limiting the extent of risk-avoiding behavior in developing countries. The existence of private markets can be important if households cannot rely on the public sector to provide information, but wages can severely limit demand, especially among the poor.

Taking these considerations into account, the researcher worked in Bangladesh, where well water is often naturally contaminated with low doses of arsenic. These wells are a primary source of potable water for millions of households. His research team showed that providing information about this contamination is an effective way to get households to use other, safer nearby sources. However, the status of millions of wells is still unknown and there is no well-established market for tests.

The study, conducted in 123 villages, sold tests to check the condition of the wells and assessed the impact on demand and how the purchase of those tests leads to risk-reducing behavior. Information on the state of contamination in drinking water from the well, group purchases, informational banners, and rates that requirement payment only when there is "good news" - only at lower prices - doubled the fraction of households that stopped using drinking water from contaminated wells.

Rural villages in Ethiopia

Following this presentation, Pramila Krishnan, of the University of Oxford, delivered a paper on, “Fading Choice: Transport Costs and Variety in Consumer Goods.” She presented her work related to market development in remote areas, focusing on how distance restricts the decisions that consumers can make.

Professor Krishnan's team designed a model of monopolistic competition between traders moving goods from market towns to rural areas. The model allows for the heterogeneity of villages in terms of market size and income distribution. An increase in transport costs reduces consumer welfare: it means lower incomes for agricultural households and higher prices for manufactures. Distance additionally reduces the possibility of choice.

The model was tested using data from a survey designed for stores and consumers in rural Ethiopian villages. Reduced transportation costs, increased market size and greater inequality dramatically increased the variety available in stores and village markets. Poverty measures do not take into account the spatial variation in the variety of goods available. The results suggest, therefore, that the level of poverty is underestimated while the rate at which poverty declines is underestimated as well.

The next presentation came from Amrita Dhillon of King's College London (UK). She lectured on “Exposing Corruption: Does Electoral Competition Discipline Incumbent?”

According to the researcher, developing countries with weak institutions implicitly and heavily rely on elections to establish rules for accountability and reduce corruption. In the paper presented, she shows that electoral discipline may be ineffective in reducing corruption when competition between politicians is too high or too low.

First, she presented a simple game theoretic model to capture the effect of electoral competition on corruption. It showed that, in equilibrium, corruption has a U-shaped relationship with electoral competition. If the election is safe for the incumbent (low competition) or if it is extremely fragile (high competition) then corruption is higher, and for intermediate levels of competition, corruption is lower. The paper also predicts that when there are different types of corruption, then incumbents increase corruption in the components that voters care less about regardless of competition.

The model's predictions were tested using data gathered on audit findings of leakages from a large public program in Indian villages belonging to the state of Andhra Pradesh during 2006-10 and on elections to the village council headship in 2006. To a large extent, the theoretical results largely confirm that competition has a non-linear effect on corruption, and that the impact of electoral competition varies by whether theft is from the public or private component of the service delivery. Overall, these results suggest that over-reliance on elections to discipline politicians is misplaced.

The last session included a presentation from Nishith Prakash of the University of Connecticut (USA), who spoke on the topic, “Do Criminally Accused Politicians Affect Economic Outcomes? Evidence from India.” He discussed how the recent increase in the number of criminally accused politicians elected to state assemblies has caused much furor in India. However, the implications of their elections to state legislative assemblies on constituency-level economic performance are unknown. Using a regression discontinuity design and data on the intensity of night lights in satellite imagery at the constituency level, his results suggest that the cost of electing criminally accused politicians on measures of economic activity is quite large. It was found that the election of criminally accused candidates lead to roughly 5 percent lower GDP growth per year on average. These estimated costs increase for candidates with serious accusations, multiple accusations, and accusations regarding financial crimes.

A public lecture

Later in the afternoon, a lecture was offered to the general public. Stefan Dercon, professor at Oxford and the chief economist at the British Government’s Department of International Development, gave the keynote address. It dealt with the implications of bias among public policy-makers and civil servants.

According to the expert, there is a dearth of studies on the biases of policy professionals: the public servants who prepare and implement policy on behalf of elected politicians.

Professor Dercon spoke about the experiments his team carried out on a novel subject pool of public servants, which show that policy professionals are indeed subject to decision making traps, such as sunk cost bias and confirmation bias correlated with ideological priors, despite having an explicit mission to promote evidence-informed and impartial decision making. According to Professor Dercon, these findings should worry policy professionals and their principals in governments and large organizations, as well as citizens themselves.