Monday, May 14, 2007

The visible hand(set)

Will information and communication technology help the poor? It is tempting to say ‘yes’ to the question. The ‘how’ part is more difficult to explain. Studies on this issue tend to be macroeconomic (an x percent increase of phones or internet per capita is associated with a y percent of income per capita, or the likes).

Others are anecdotal evidence, although doesn’t mean that they are flawed. In a seminar, C.K. Prahalad of the Ross Business School, University of Michigan, mentioned that internet-literate wheat farmers in India examine the world price fluctuation through the Chicago Board of Trade website before deciding how much they should sell to the market. (Our fellow Rizal once said, “How internet helps the poor? Sell the computer, buy them food!)

A forthcoming paper by Robert Jensen (was my advisor at Harvard, now at Brown) provides a deeper analysis. The paper will be published in the Quarterly Journal of Economics next August. A review of the paper is available in the Economist. His work showed that the penetration of mobile phone had increased the average profit of fishermen in Kerala, South India.

At any given day, Kerala’s fishermen have to make a difficult choice: to sell their catch at the local market, or to go to another market along the coast. Whatever the decision is, you need to hope that your fellow fishermen go to the other market so that you would face fewer competitors. This is a one-off decision. Once you come to a certain market, it is almost impossible to move even if the market is full. You need fuel and time to travel. As the result, in a certain market there are plenty of fish that are thrown away (you can not keep the fish). In another market fifteen kilometers away, however, some buyers have to leave the market empty-handed.

This was the situation before 1997. Starting in 1997, mobile phones were available in Kerala. With mobile phones, fishermen were able to call around to find the best price, or to decide to which market they should go while they were still at sea (within 20-25 km from the coast).

The paper was more than just anecdotal. The gradual introduction of mobile phones provided a pseudo-randomization. So the author can divide the population into ‘treatments’ (the early birds) and ‘controls’ (the late comers). The result was very interesting. Once coverage became available in a region, fishermen who ventured beyond their home markets jumped from zero to 35%. The number of excess supply (wasted fish) or excess demand (unlucky buyers) went down to almost zero. Price disparities among markets fell in a typical ‘law of one price’ movement. And, more importantly, fishermen’s profits rose by 8%, and consumer price fell by 4%, on average.

This study provides more insights than that. It shows that the market, when it works, helps the poor instead of exploiting them. True, sometimes the market doesn’t work. The introduction of (information) technology makes the market work. And, beautifully, it was the profit-maximizing mobile phone companies who eventually helped the poor. Not the government, nor charity organizations.

8 comments:

  1. Interisting point. As for Information Technology helps the poor fisherman, they probably can have more exposure to the market out there by selling them through eBay? :P

    Is it because people put so much (unhealthy) trust to the Information Technology (i.e. Internet) to solve world's problem? Such as:
    - How the Internet (i.e. blogs) solve political problem in Indonesia?
    - solve education problem to the remote areas?
    - etc

    Of course, Information Technology may play a significant role in solving the problem, but how is the question we're trying to answer here. Merely talking about it doesn't help either ;)

    -I'd better shut up now-

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  2. Assuming that the idea of using a cellphone didn't come up just like that, I'm curious how they knew it's useful.

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  3. Increasing relevant information flow certainly activate the law of one price, reducing rent of information horder and increase market efficiency.

    Does it have impact? Yes. Will it bring world peace and universal happiness? No.

    For Indonesian case I'd argued that more than information is sufficient since other many structural and network problems.

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  4. Rusdy:
    certainly eBay is out of the question, as the fish would get rotten before the bid is sealed :-)

    Anymatters:
    good question! Not sure whether the paper answers that. but it takes another study to explain this. my hypothesis:
    1. the knowledge on mobile phone was already around (we talk about India here), but not the infrastructure. So once the villages got the coverage, they quickly learned how to make use of it.
    2. social network effects -- some people in the community had the knowledge. it was sufficient to trigger knowledge spillover/neighborhood effect to the other fishermen. this was what happened when the new variety of rice was introduced in India during the green revolution.

    Berly:
    "Will it bring world peace and universal happiness? No."

    OK. Do you believe in a big reform with grand, noble target (Jeff Sachs camp), or in a series of piecemeal reforms that try to tackle simple problems bit-by-bit (Bill Easterly camp)?

    "For Indonesian case I'd argued that more than information is sufficient since other many structural and network problems."

    Yes of course. Now, the challenge is to identify "other structural and network problems." Then, forget about for a while. Think about specific problems at the local level (up until the village or community), then try to solve such local challenges.

    That's how we should see this paper. It doesn't offer a solution for everything. But again, do we need a single solution for everything?

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  5. very good hypothesis!
    intelligentsia class exists then poor people can think, so poverty can be diminished.
    assuming that the whole world should have that class in the society, then it would be such an ideal world as everyone's rich.

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  6. I just got a data plan on my mobile. I pretty much do not need my computer anymore since I do so much with my mobile phone. The neatest thing is that I can even watch naughty movies:) It is pretty neat, it's called Mobile TV. All I do is point my phone to sexoncell.com and they have adult mobile movies in different formats like 3gp movies, symbian, pda or whatever. If you have any other cool sites, please let me know! This one, though, even has a free daily mobile movie.

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  7. Err.. manager, how come does this pervert sneak into our cafe? I mean, I do have porn mp3s in my hard drive. but we are talking about fishermen, not sharing Kiera Knightley's hot video, aren't we?

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  8. I don't know, Ape'. Seems like Billy the Kid spent some time with word verification and all that.

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