In a well thought out piece in the New Republic, Michael Hobbes argues the answer isn’t ‘yes’ or ‘no’, but the expectations for aid programs to completely reinvigorate an economy or improve health care dramatically are often overestimated. Consider the case of a program that distributes food to individuals who are malnurished.
In Udaipur, India, a survey found that poor people had enough money to increase their food spending by as much as 30 percent, but they chose to spend it on alcohol, tobacco, and festivals instead. Duflo and Banerjee interviewed an out-of-work Indonesian agricultural worker who had been under the food-poverty line for years, but had a TV in his house.
You don’t need a Ph.D. to understand the underlying dynamic here: Cheap food is boring. In many developing countries, Duflo and Banerjee found that even the poorest people could afford more than 2,000 calories of staple foods every day. But given the choice between the fourth bowl of rice in one day and the first cigarette, many people opt for the latter.
Development projects often focus on a single goal (e.g., school attendence, calories consumed, quality of life), but in reality, the individuals receiving the aid have a utility function that depends on multiple factors.
The article is interesting throughout.