Poverty, Development, and Inequality: Questions and Short Answers

Part I:

True/False and Justify: For each of the following statements, choose whether it is true or false and justify your choice with a brief explanation.

Impact evaluation is a powerful method to measure the True ATE, but can be difficult in practice since it can be prohibitively expensive to collect counterfactual data.

If a good or service is not traded on markets, there is no way to value it.

Even if the Lorenz curves for two countries overlap, we may still be able to compare the two curves and say that one country has more inequality than the other.

Amartya Sen argues that income per capita is the best way to measure development.

The Human Development Index (HDI) is a multi-dimensional way to measure poverty.

Esther Duflo would agree that “big picture” questions (like “how do we reduce poverty?”) can be directly answered using Impact Evaluation. 

Inequality in wealth is generally greater than inequality in income. 

If we could eliminate income inequality everywhere, everyone would have access to the same opportunities to improve their economic status.

One challenge associated with poor households’ investment in health is that many health investments have important externalities.

Since exchange rates don’t fully account for differences in cost of living, we can use purchasing power parity (PPP) rates to compare the cost of one good (or basket of goods) in country A with the cost of a different good (or different basket of goods) in country B.

1. Categorize the following reasons for caring about poverty, development and inequality as either normative or positive:

a. Poverty may prevent people from making investments in their future that cause their children to remain in poverty.

b. In a world with a global per capita annual GDP of over $17,000, it is wrong that some people go hungry.

c. High degrees of inequality may lead to underinvestment in public goods such as education or public health, because the extremely wealthy can supply these goods privately for themselves.

2. There are many ways in which Covid-19 will continue to significantly impact developing countries. Choose one way, briefly describe it, and suggest (in 1-2 sentences each) a normative and a positive reason for why this concern is important.

1. Impact Evaluation In the move to online instruction due to covid-19, Development University was concerned that its students may not have the technology they needed at home to keep up with their classes.

In order to address this issue, at the start of the term, the university offered all students coupons for a 50% price discount on a new iPad. The hope was that the iPad would allow students to participate more fully in their online classes, and therefore allow them to learn more. Development University heard that you have learned how to do impact evaluation in your economics classes, so asked you to evaluate how well the iPads worked for their students. In particular, they wanted to know if the iPads caused student grades to improve.

In looking at the data, you notice that although all students were offered the coupon, only half of them purchased an iPad through the program. Therefore, you decide to compare the average GPAs of students who purchased an iPad to those who didn’t. You find that students who purchased an iPad had an average GPA of 3.6, and students who did not purchase an iPad had an average GPA of 3.0. a. Write one sentence that clearly describes.