Traffic jams

Published by: Francisco Mejía

In 1966, the incredible Julio Cortazar published a short story called ‘The Southern Thruway’. An accident happens in a lazy summer afternoon and traffic grinds to a halt. Nothing moves. Everybody waits. One by one people get out of their cars to stretch their legs and some start chatting. Traffic is stuck. Night slowly falls. The engineer in the Peugeot and the woman in the Dauphine fall in love. Some sleep. Dawn comes and the way to Paris is still closed. Suddenly one car starts and moves 5 yards. Another one. Everybody runs to their car. They say goodbye. In one lane the Dauphine moves and in another the Peugeot crawls away. Very slowly at first. The Dauphine is three cars ahead. A few miles later the Peugeot can barely be seen. They won’t see each other again, as a sea of red lights engulfs them.

On these more prosaic days, air pollution and traffic congestion are increasingly serious issues in Latin American cities. Two relatively recent experiences show that some solutions can be effective in the short term but not in the long term. Nowadays it is considerably more difficult than 50 years ago to convince drivers to leave their cars behind. Even for a few hours of temporary happiness.

In an effort to reduce air pollution and congestion, Latin American cities have experimented with different policies to persuade drivers to give up their cars in favor of public transport. This paper looks at two of such policies: the driving restriction program introduced in Mexico-City in November of 1989 –Hoy-No-Circula (HNC)– and the public transport reform carried out in Santiago in February of 2007–Transantiago (TS). Based on hourly concentration records of carbon monoxide, which comes primarily from vehicles exhaust, we find that household responses to both HNC and TS have been ultimately unfortunate –more cars on the road and higher pollution levels– but also remarkably similar in how fast households have adjusted their stock of vehicles, within a year. Another empirical finding is how different short- and long-run effects of the policies can be. In fact, we find that a (permanent) driving restriction like HNC can still be effective in the short-run, say, for a month or two.

The paper

Hirschman or the years of thinking differently

Published by: Koldo Echebarría

I just finished Jeremy Adelman´s biography of Albert O. Hirschman, Wordly Philosopher. It is a deep and detailed account of the life of a remarkable person. Reading it is a breath of fresh air, in which the values of integrity and consistency stand out in a career full of difficulties. Too original, too bold, too interdisciplinary, too reformist or too liberal. He suffered the mistrust of his enemies, but also from some who were considered friends. This made him wander for many years across occupations and universities, until late in his maturity, he found shelter at Princeton.

The irony is that Hirschman was the antithesis of a radical. His problem was, translated into a political metaphor, being too right-wing to liberals and too left-wing to conservatives. He would reach his convictions combining a very strong theoretical background with an empirical analysis free from bias and strongly anchored in real forces. His only bias was that of hope against fatalism. His consistency was expressed in being honest with his believes in a world that rewarded and still rewards, the combination of the various forms of ideology and power.

It is significant in this regard the tension surrounding his relationship with the World Bank which resulted in his “unauthorized” book Development Projects Observed. In it Hirschman defends projects as development tools as they represent the concrete, compared to overall comprehensive plans or strategies of which he was suspicious. But at the same time, he would distance himself from the Cost Benefit analysis orthodoxy and rejected the idea that some index could provide a comprehensive ranking of Bank projects. Opposed to this, he would highlight, among other things, the importance of qualitative assessments, the discovery of unintended effects or the analysis of a project’s social and political repercussions. He was also opposed to the practice, still used, of isolating projects in technocratic bubbles. World Bank’s management reaction to such wisdom was very negative, rejecting the report’s publication. After this experience, Hirschman closed his trilogy of books on development and began to think of Exit, Voice and Loyalty, which would become his most famous work and the most revealing of his own life experience.

As an epilogue, I can’t help but think on what Hirschman’s reaction would have been to the impact evaluation work that we promote in this blog and the evaluation methods which we use at the IDB. I have an opinion, very nuanced, but I invite you to read the book to have your own.

Lastly, this is my last blog entry as Strategic Planning General Manager at the IDB. I will talk about other things from my next destination as the IDB Representative in Chile. Thanks you for your attention in all these years.

Shelter from the storm

Published by: Francisco Mejía

In 1997, a small group of Chilean students started working as volunteers in poor areas in the beautiful Bio Bio region in Chile. A few years later, the group decided to start building provisional emergency housing – called mediaguas in Chile – designed to house a family of four.  In 2000, over 600 volunteers helped build 5,700 houses, under the umbrella of an NGO originally called “Un Techo para Chile”- a Roof for Chile. Fast forward. Today “Techo” operates in 20 countries, including the US, has mobilized over 600,000 volunteers and has help build over 90,000 houses in 19 countries in Latin America.

Techo houses are typically made of out of wood or aluminum, are approximately 18m² and take one to two days to build by a team of 6 to 12 people at an approximate unit cost of US$1,000, where the beneficiary contributes with 10% of this cost. Techo targets the poorest informal settlements and the households within these settlements that live in sub-standard housing. Although typically these houses are improvements in shelter in terms of flooring, roof, and walls, the new house does not come with sanitation, bathroom, kitchen or amenities such as plumbing, drinking water, or gas.

A few years back, Techo asked J-PAL to conduct a rigorous Impact Evaluation of its work in Uruguay, Mexico and El Salvador. J-PAL put together a top team: Sebastian Galiani (U. Maryland), Paul Gertler (Berkeley), Ryan Cooper (JPAL), Sebastián Martinez (IDB), Adam Ross (World Bank) and Raimundo Undurraga (JPAL)

The experimental design is based on the selection of beneficiary families on a lottery basis giving each family an equal opportunity to receive the upgrade within a given year in a given settlement.  J-PAL’s experimental design is then based on exploiting randomization of treatment at the household level within settlements (cluster), with eligible households assigned to treatment and control groups within each settlement.  An important feature of this evaluation is that it allows the same intervention in three different contexts: El Salvador, Mexico and Uruguay.

The study looked at several outcome variables including satisfaction with the house and life satisfaction, security, assets, labor supply, and child health, all contingent on Techo providing an improvement in terms of the quality of housing.

What were the results? Read more…

In the long run we are all dead

Published by: Francisco Mejía

Discounting future flows is a critical step in Cost Benefit or Cost Effectiveness. Many institutions still use relatively high discount rates, which might not be applicable to projects where benefits-or costs- will happen way in the future in a world of rapidly declining cost of capital. Is it time to reconsider discount rates estimates for development projects, particularly in light of climate change and historically low interest rates?

If you work in climate change or education interventions, where benefits and costs materialize a long time from now, the choice of a discount rate is of critical importance. The background papers commissioned for the Stern Review concluded that this rate – which they base on the inter-temporal value of an extra unit of consumption (marginal rate of substitution) – is very low (on average 1.4%) and declines over time.

This approach is in sharp contrast with that typically taken by many governments and international agencies which base their discount rates on a uniform opportunity cost of capital and enforce its use across the board for all of investments. This typically yields discount rates in the 7-14% range which were first estimated in the 1960s.

But this tension on the estimation of a discount rate goes way back: from Arrow to Feldstein or from Sen to Harberger, the rate – reflecting which constraint was binding – ebbed and flowed, fluctuated and moved. But as economists do have more than two hands, in his classic 1982 article “Discount Rates” J. Stiglitz argued that the rate should vary from project to project, depending on which constraints are binding.

But this hot debate around the discount rate fizzled in the real world. Read more…

Don’t make war, make elections

Published by: Guest blogger

by Leopoldo Fergusson* and Juan F. Vargas**

Democracy and conflict: a hard question

Civil conflict is one of the major threats to long-run economic development, and causes enormous human suffering. However, we still do not have a clear understanding of the factors that exacerbate or help mitigate the risk of conflict and, in particular, about the role of democracy in shaping violence.

In many theories democracy and conflict are interrelated, but testing the effect of democracy or democratic transitions on conflict is extremely challenging. On the one hand, democracy is a difficult concept to define and measure. On the other, there are many factors in society that may simultaneously affect the risk of conflict and the degree of democracy, making it hard to interpret any correlation between democracy and violence as evidence of a causal relationship.

To address these challenges and make progress in understanding whether democracy reduces or exacerbates the risk of conflict, in a recent paper we studied an experiment of history that allows us to evaluate the impact of one simple, measurable dimension of democracy: the size of the franchise.

An experiment from history

In 1853, Colombia enacted a Constitution that abolished slavery as well as literacy and wealth requirements for voting, effectively establishing universal male suffrage. This historical episode provides us with an opportunity for studying the impact of extending voting rights on the incidence of civil conflict.

A comprehensive population census administered in 1851, two years before the constitutional reform, allows us to build a proxy for the proportion of enfranchised citizens in each municipality. As it turns out, the overall increase in voting rights was very large since the preexisting wealth and literacy requirements, together with the existence of slavery, disenfranchised the majority of the population. We also compiled a novel detailed dataset of the number of political battles fought in each municipality each year over the course of the XIX century, a period marked by intense violence and frequent civil wars in Colombia.

Taken together, this creates an ideal setting to investigate the effect of franchise extension on civil conflict. We assess whether places where more people gained the right to vote experienced more or less violence following the new Constitution, and we* asked ourselves.

 Is there less violence if more people can vote?

Read more…