Karlan (Economics/Yale Univ.), president of the nonprofit Innovations for Poverty Action, and his IPA collaborator Appel take a hard look at the realities of fighting poverty effectively.
Their concern has been to apply standard research methods—random sampling, control groups, statistical analysis, etc.—to evaluate different approaches and promote the most promising. They focus on case studies from around the world to illustrate how overlooked small details frequently make the difference between the success and failure of a project. While economists argue the relative merits of the traditional approach, which analyzes potential costs and benefits, and behavioral economists point to examples that illustrate how humans are frequently inconsistent and apparently irrational, Karlan and Appel cut to the chase by looking at the nuts-and-bolts of real situations. The authors show that despite their current popularity, microcredit programs are not necessarily the best way to support the efforts of Asian and African women who run small-scale entrepreneurial operations. Millions of dollars are pouring in to these programs from donors who are led to believe that they are helping particular individuals, while the truth is that the money they contribute goes directly to intermediary microlenders who service the loans. They charge interest rates that vary from 10 to 120 percent APR and cover their risk by forcing borrowers to join groups that are collectively responsible for any member default. The authors discovered that not only were charitable funds being misdirected, but many of the borrowers were forced to take rotating high-interest loans to cover exigencies because savings accounts and insurance were not available to them.
Karlan and Appel write that their goal is “to speak directly to readers, to lead them into some corners of the world they might not otherwise encounter, and bring them face-to-face with the people who populate those places.” They have succeeded admirably, as both advocates and analysts.