Tuesday, June 22, 2010

Development: Values and Incentives

This is in the same vein as Mark's last post. For weeks now we have been questioning the forces behind change and we believe that the sword has two sides: values and incentives. Also, for over two years I have been leading a group that meets to discuss papers about morality and economics. From all of these conversations I believe that I have carved out a dissertation idea,

"The Role of Moral Foundations in Economic Policy and Civic Life"

The paper is equally ambitious as the title sounds. What will I do now? Well, I contacted John Haidt at the University of Virginia about his data on morality (yourmorals.org) and he told me it would be available in the Fall of 2010. So, currently what I am doing is simply jotting down ideas and storing them in files. I will use the blog as a forum for my personal odyssey. Here is the thought of the day:

The million dollar question in development economics is about “transition”. If we know what kinds of rules aid in wealth creation (good property rights, access to sound money, etc.) how do we get developing countries to adopt these good rules? The reason this is a million dollar question is because the World Bank, IMF, and others have been really unsuccessful in not getting good rules to stick.Much of the literature has focused on incentives and rightfully so. Many times improvements in institutions are blocked because there are beneficiaries in the current institutional arrangement (whether in the recipient country has incentives to block or different players internal to World Bank and IMF don't have incentives to see projects through).In such cases we are in the comfort zone of economists where institutions are shaping incentives.

The big thought is this . . .

Some rules may not take root, not because of entrenched interests, but, because of conflicting values

The study of values, though not foreign to the first economists like Smith, Hume, etc., is a strange fellow to the contemporary study of economics which has been devoid of moral content for quite some time.

What does the failure of imposing institutions when there are conflicting values seem to stress for development economists? The importance of spontaneous order seems to be stressed here. The idea of spontaneous order is that there is no “we decided” to have a certain institutional arrangement. Instead, institutions or rules that we govern our society by have simply emerged from a system that is palatable to many of the people.

The reason I believe that spontaenous order will be the conclusion of such a line of study is because of the information requirements necessary to induce the acceptance of certain rules.

1.  We need to classify institutions by their moral content which would seem to be based on perception and therefore could vary from culture to culture.

2.  We need to know the moral tendencies of people within the culture and how engrained those tendencies are, ie. are they malleable or fixed?

3.  What is the best method to transmit arguments in order to persuade certain values?

Currently these thoughts are all very abstract. What will help in the future is for me to put meat on the bones. What will be necessary? One, I need to show that certain rules carry moral content. Two, I need to tell "real world" stories about how these conflicts played out. Three, (kind of like objective one) I need to run experiments that would demonstrate in the laboratory how certain moral foundations find some rules repugnant. Four, I can start to develop a more coherent theory about what this means for development economists.

Comments Welcome!

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