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Lecture 14

ECON 30801 Lecture Notes - Lecture 14: Chris Blattman


Department
Economics
Course Code
ECON 30801
Professor
Donovan
Lecture
14

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I. Looking at Jobs
A. Recent pieces of evidence - going back to MFI
1. No average impact, but a lot of heterogeneity
2. There are a few people who MFI does a lot for, but a lot of people that it
does nothing for
B. Targeting
1. 2 group of entrepreneurs
2. Gung-ho entrepreneurs - thought that they would get something out of the
intervention
(1) Only targeting these guys is ex-post - it’s all endogenous to
what they have already done
(2) People who had a business before the microfinance
organization entered
b) Reluctant entrepreneurs - people who only opened a business
after MFI entered - had access to more capital and lower interest
rates, so opened a business because now they could, but they
really don’t have the skills to do it
3. One key MFI innovation - interest rate is dramatically lowered
a) Imagine the following - you can choose to run your own business,
or you can choose to work for someone else for some wage W
b) Claim: gung-ho business entrepreneurs = people with ;
zh
W
reluctant entrepreneurs are people with zL
W
c) Profit for gung-ho: ; profit for reluctant: z sΠ = HαRs
sΠ = zLαRs
d) Argument is gung-ho entrepreneurs are going to choose to run
their own businesses because profit is higher than wage, but
reluctant entrepreneurs will have profits worse than the wage so
they will (or should) work for someone else
e) By lowering the interest rate, you may be just bringing worse
people into the market (reluctant entrepreneurs) → no longer
costs people that
much more to run their own business → may be
leading people to make worse decisions about running their own
businesses vs. working for someone else and earning a wage (like
in a factory or something)
4. One way to do targeting - learn about people’s businesses/screen the
people who will receive the loans
a) Only give loans to people who already have a business
b) If people have been successful for years with high interest rates,
then you know that they are successful enough and are good
business owners/will benefit from a loan
5. Evidence suggests that proper targeting is critical for cost-effective
business interventions
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