The Economics of Hope

                Why do so many development interventions fail to demonstrate positive impacts?  Even one of the most hopeful ideas, such as microfinance, has left the development community disappointed after a series of rigorous experimental trials has failed to show transformative effects.[1]  It makes one wonder if both development practitioners and academics have been missing something.  That something may be understanding the importance of hope and aspirations among the poor.

                Traditionally the field of development economics–and its application in institutions such as the World
Bank, the United Nations Development Program, and most development NGOs–has focused on relieving the tangible economic constraints of the poor.  The prescription for low educational outcomes has been building more schools, buying more textbooks, providing more and better teachers; the remedy for struggling micro-businesses has been roads to reach new markets or providing microfinance loans.  All too often we have tried to address poverty issues on the supply side, focusing on the relief of external constraints, when it may be in understanding and addressing the internal constraints of the poor where the greatest breakthroughs may lie.

The disappointing outcomes from many programs focusing on external constraints have caused some economists and other researchers to look at poverty alleviation from a different angle, a more holistic angle, focusing on the character attributes and values of individuals and communities that seem to naturally foster prosperity. These include resistance to temptation, self-control, delayed gratification, forgiveness, trustworthiness, creativity, pro-activity, integrity, and future-mindedness.

 Recently in a series of papers and experiments with my colleagues Paul Glewwe, Philip Ross, Travis Lybbert and Alessandra Cassar, I have become captivated by another phenomenon, one that has traditionally been the domain of philosophers, theologians, and poets: Hope.  Hope is something that development practitioners constantly mention in referencing successes with their client populations.  “Bringing hope to the children” is something you see all the time in ads for development organizations, and it has come across to many as more than a little cliché. And until recently hope has remained on the sidelines of development research. But no longer, and once you begin to think about the importance of hope among the poor, it becomes hard to think about anything else that may be so significant.

Recent field experiments have hinted at the importance of hope.  For example, one study looked at the impact of a simple set of asset transfers worth approximately $100 to the ultra-poor in an impoverished region north of Kolkata. The researchers found that a random invitation to participate in this program, which involved the receipt of a cow or some goats or chickens, resulted in a 21% increase in earned income, a 15% increase in consumption, an hour more per day devoted to productive work, and remarkable improvements in psychological health. Effects from the transfer on economic behavior and emotional well-being greatly exceeded what the researchers could have expected from the economic value of the transfer alone.  The experiment seemed to provide subjects added hope for the future, encouraging them to invest more of their own resources in productive economic activities.[2]

In a new paper, Travis Lybbert and I try to create a formal structure for studying the role of hope in escaping poverty traps.  We first try to create some useful definitions, for the word hope has a number of different meanings.  Consider, for example, the difference between the use of the word hope in the following sentences:  A) “He hopes that it will rain tomorrow.” and B) “He hopes to install irrigation this spring.”  While the first use of the term is devoid of agency—individual control over outcomes—the second implies a usage of the word in which optimism and human agency share a relationship.  We might call the first kind of hope Wishful Hope and the second kind of hope Aspirational Hope.

We can see both of these kinds of hope in the diagram below looking at hope in terms of two characteristics: optimism and agency.  We call Wishful Hope “Hope 1” and Aspirational Hope “Hope 2.”  While Hope 1 serves many important purposes that we discuss in the paper, it is Hope 2 that we view as key to development.  In the diagram we also see two kinds of hopelessness as well.  The first kind of hopelessness is what we call Hopelessness 1, or hopelessness with helplessness, a kind of victimized state where one is pessimistic and feels little control over forces that determine personal outcomes.  Here negative outside forces dominate any sense of agency or control the person may feel over improving his or her lot in life.  This contrasts with Hopelessness 2 in which life may feel bleak, but at least one has some control over it, such as a peasant farmer who must endure a daily drudgery of hard agricultural labor to make ends meet.

We focus on Aspirational Hope, or Hope 2, which seems to be a key ingredient to economic development.  When people are hopeful in this way, they invest time, money, and energy into activities they believe will bring a future payoff: schooling, vocational training, small businesses, their health and that of their children.  Outsiders may try to provide these as best they know how, but what we argue is that unless there are underlying aspirations for these things—or the intervention itself generates these aspirations—the well-intentioned intervention will probably have little positive impact.

Based on this framework Travis Lybbert, Alessandra Cassar and I are designing and conducting a randomized field experiment where my family and I are currently stationed for six months in Oaxaca, Mexico.  Somewhat appropriately, we think, the subjects of the project are involved in microfinance, 550 women involved in community banks.  Our experiment is being carried out in an indigenous Zapotec area where traditionally aspirations have been very low.  The practitioners believe, for example, that most women in the community banks have realized low returns on their loans within their enterprises, and moreover that not a single woman in the group has hired an employee within her business.

Research in positive psychology has defined hope as consisting of three components: 1) goals, 2) agency, and 3) pathways.[3] Our project implements a treatment laden with these three aspects of hope (Hope 2) that includes different aspects of goal and aspirations development, self-esteem and self-efficacy enhancement, pro-activity exercises, an inspirational film, a goal-setting exercise, and a four-week curriculum to help build all three of these components of hope among women in (a randomly selected) half of these community banks.  We will take follow-up surveys to measure short run and long run impacts on aspirations, happiness, business sales, savings and other important outcomes to see if “hope works.”   We suspect it does.

[1] See the recent symposium reviewing six randomized trials of microfinance in the January 2015 issue of the American Economic Journal: Applied Economics.

[2] Banerjee AV, Duflo E , C. Raghabendra, and J. Shapiro. 2011. Targeting the Hard-Core Poor: An Impact Assessment. Jameel Poverty Action Lab Working Paper.

[3] Snyder, C.R. (1994) The Psychology of Hope. New York: Simon and Schuster.

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