Friday, March 16, 2007

Counter intuitive counter-incentives

Why don't governments and philanthropists support programs that work?

This is the underlying question in a January New Yorker profile on Amory Lovins and a paragraph in the March issue of The Atlantic on the study, "The Economic Lives of the Poor." The study on poverty was produced by economists at MIT's Poverty Action Lab. An article extract of the study by one of its authors, Abhijit Vinayak Banarjee, notes:

"Empirical research on best practice in development has grown apace in the last decade or so, and we now have evidence on a number of programs that work. These are programs that do something very specific -- such as giving deworming drugs to schoolchildren and providing a particular kind of supplemental teaching in primary schools -- that have been subjected to one or several randomized evaluations and have been shown to work. ... We could clearly spend all that and more without ever funding a program that does not have a demonstrated record of success, especially given that evidence on new programs is pouring in."

The MIT lab is focused on using randomized trials - an evaluation technique usually deemed too expensive for social interventions - to find what programs work. How do they make it affordable? They've centralized the research work and use it across extant programs - rather than having programs attempt to build this kind of research into their own budgets.

On the other hand, Amory Lovins, CEO of the Rocky Mountain Institute, is known for his optimistic approach to energy-related solutions. Since 1976 he has been promoting, prompting, and pushing to get corporations, the US government and others to implement the tools that he says will enable the U.S. to:

"...eliminate its use of oil by 2050, even while reducing its coal and natural-gas consumption, enjoying economic prosperity, and preserving the Arctic National Wildlife Refuge."
Lovins has crunched the numbers, found the strategies that reduce energy use, and identified the myriad perverse incentives that keep people from implementing them. For example, Lovins has proven blueprints for refurbishing buildings so that the energy consumption drops dramatically and savings skyrocket. The incentive problem? Building owners would have to pay for the renovations while tenants pay for utilities - so the landlords can't be bothered. The mere fact of savings isn't enough; Lovins has to find ways to make those savings return to the right people.

What do we do with the "evidence coming in" on anti-poverty programs that work? We need folks like those at MIT to work on the incentives issue - find out what the perverse incentive structures are that keep governments and philanthropists acting like landlords. In other words, mere evidence of what works isn't enough, we need to find the counter-incentives to really change how we fund.

No comments: