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Hayek and Duflo

Provocative post speculating on what Hayek would think of the idea of using micro-experimentation as a way of improving aid efforts to help poor people.

The way I think of it is that economists understand that incentives matter. We also understand that markets invariably use incentives. Then many economists make the mnistaken leap that we can get the effects of markets by creating incentives for good outcomes. These folks ignore the infrastructure of markets–cultural context and other tangible and intangible feedback loops that make markets work well. This is the flaw in California’s energy market reforms and most educational reforms that try to use incentives. (Check out this podcast with Diane Ravitch for example.) I suspect the same problems will plague the attempts to apply the lessons from experimentation in poor countries.


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