2012 DAA

A Stamp on the World

Dean Karlan applies economic theory and research to attacking one of the world's most elusive problems - global poverty.

By Rebecca Rolfes
Photo by Matthew Gilson
Published: Fall 2012


Some economists have the reputation of providing insight only in hindsight - when it's too late to be useful - or of labeling the world's enormous socio-economic problems as too big to solve.

That's not good enough, say the young crop of economists who are out to tackle the intractable. Of that breed, Dean Karlan has taken on perhaps the largest and most elusive problem: global poverty. Half the world's population, 3 billion people, lives on less than $2.50 per day. An estimated $2.3 trillion has been spent trying to help the poor, to little avail - hence the name of Karlan's recent book, More Than Good Intentions.

Karlan and his colleagues are out to do what he says young PhD candidates in economics increasingly want to do: "Make a stamp on the world." They are not satisfied with the usual uses of their science, even in its most micro applications. They want to take what they know and apply it to real-world problems.

Some antipoverty programs actually work, of course, or work better than others, and Karlan wants to quantify what it is that makes that happen. Using a combination of behavioral and traditional economics, he wants to test what actually works in the field, prove that it works consistently in different countries, and then scale it up so it solves more than one small pocket of the problem.

"We can't get to where we need to be from a policy perspective with just a few projects," Karlan said in an interview from New Haven, Connecticut, on the sidelines of his son's soccer game. "We need a lot of projects on a large scale with a lot of results in order to push policy makers."

In order to reach that kind of scale, Karlan in 2002 founded Innovations for Poverty Action (IPA), a Connecticut-based nonprofit organization that has grown to manage projects in more than 40 countries, with a staff of 600, and income of almost $30 million in grants from groups as renowned as the Bill and Melinda Gates Foundation as well as individual donations. All this is in addition to his day job as an economics professor at Yale University. He also founded a for-profit start-up, stickK.com, which helps people commit to and achieve their goals. This year, while
on sabbatical from Yale, he has helped homeschool his three children while traveling the globe with the family in tow.

Different from other economists

Such prodigious energy was notable when he was a student at Booth. Karlan can "get more done than anyone I know," according to his former classmate, Wharton School decision-science professor Cade Massey, '03. "He has all that energy to draw on and to give him focus. When you spend time with Dean, you come away inspired and daunted. He's categorically different than other economists. It's not just an intellectual difference. It's something about his productivity, all that creativity, and all of it focused so well. He doesn't just work. His life and his work blend perfectly and one fuels the other."

Born in the Bronx and raised in Florida, Karlan began his career in investment banking, not uncommon for an economist. In 1992, however, he and his best friend were looking for a cheap way to travel to Latin America before they began graduate school, a trip that led him to a three-year stint in El Salvador with the microlender FINCA. When he resumed his academic training in 1995, Karlan simultaneously earned his Booth MBA and a master's degree in public policy at the University of Chicago Harris School of Public Policy Studies. At Booth, Richard Thaler, Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics, and a pioneer of behavioral economics, was influential.

"Getting to know him and having that introduction to behavioral economics made a large imprint on my career and on IPA and its reputation," Karlan said. He became Thaler's teaching assistant and his work is featured in Thaler's 2008 book, Nudge: Improving Decisions About Health,Wealth, and Happiness.

When Karlan was working for FINCA, he would ask why certain programs were undertaken, but found no real answers. His instinct as an economist was to look at the data—but there were no good data. No one had ever done randomized control tests (RCTs) to find out what worked and what didn't in that area. And if they measured outcomes at all, they measured the wrong things - number of participants, for instance, rather than actual improvements in living standards. But most importantly, without controlled tests, if things improved or worsened, who was to say that the poverty relief effort was the cause?

This is what makes IPA different. It's driven by an obsession with data, with conducting research to figure out which programs work in order to guide the investment of development dollars to where they'll have the greatest impact. When IPA staff members come across a program that's genuinely successful and data-proven, they try to find funders to help expand it and governments willing to implement it.

"There's always been an interest in economics between causes and outcomes," Karlan said, "but now we're using these types of things to move into international policy."

Karlan asserts that the cures for poverty are not limited to money. The longer people stay in school, the less likely they are to be poor. The healthier people are, the less likely they are to be poor. The more access to clean water, to transportation, to goods and services, the less likely they are to be poor. All of which raises the question: Where do the lines of antipoverty work stop and those of health, education, and development begin?

Helping make real improvements

"IPA does have some initiatives that give us focus, but we are largely driven by the researchers and their work," Karlan said. In Zambia, IPA researchers are investigating whether teenage girls who are taught to negotiate better - in buying supplies, in organizing their chores, and in avoiding risky behavior - will stay in school longer, which would reduce the likelihood that they will be poor as adults. Researchers can come to IPA to test how to provide clean water, from protecting springs to household chlorination - as is happening in Kenya. And if those RCTs succeed, they can be tested in other countries. With enough data from enough places, the way forward becomes clearer.

Thaler and behavioral economics showed Karlan that the poor often make choices similar to the well-off when it comes to managing their money. Desperation does not make you more rational or enable you to make better decisions with what little you have. People who need loans and have access to lenders don't automatically borrow money, for instance, even if the terms are favorable. Subsistence farmers don't take out crop insurance even when they can afford it. Much of IPA's research has a two-pronged purpose - to design and test a program to see if it works and then to figure out how to get more (and the right) people to use it. The choices people make are as much a determiner of their fate as whether help is readily at hand.

"If we don't understand how products, services, and policies lead to improvements for people," Karlan said, "we are losing sight of what matters - helping people make real improvements in their lives. This is true whether thinking about a nonprofit doing charity work, or a for-profit claiming to have a positive impact on poverty. In the big picture of poverty, it shouldn't cut it to just use rhetoric or bad data to make one's case." ■

Last Updated 1/16/14