Michael R. Kremer

Nobel 2019 | Experimental economics examples: Can smaller scale experiments help save the world?

Michael Kremer is not an economist who speaks in theory. He answers questions directly and always with real world examples. But it wasn’t always this way. Having started out as a macroeconomist studying economic growth, Kremer spent a fair share of time writing models and studying theory. On a trip back to Kenya, a country he had lived and worked in before, fateful conversations led to the radical shift to take a more experimental approach in his work. While some people questioned the move, others saw its potential from the start. Two of those early supporters went on to be awarded, alongside Kremer, the prize for reducing poverty around the world. Suffice it to say, it was a move in the right direction.

Michael R. Kremer

Michael R. Kremer

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 2019

At a glance

Born: 1964, New York, USA

Field: Development Economics

Awarded: The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 2019 (shared)

Prize-winning work: Experimental approach to alleviating global poverty

Favorite countries to visit: Kenya and India

Most influenced by: His parents

A lesson in altruism: Kremer and his co-laureates donated their entire winnings to the Weiss Fund for Research in Development Economics

A More Experimental Approach to Economics

After graduating from college, Kremer taught secondary school in western Kenya. He returned to the US for graduate school and visited Kenya some years later to reconnect with old friends, one of which was working for a small NGO at that time. Focusing on different education programs, the goal was to better understand school performance and to learn which approaches may be most impactful.

“One thing about randomized evaluations is that they tend to involve very close collaboration between researchers and practitioners who bring very different backgrounds,” says Kremer. “These types of collaboration bring economists into very close contact with the people or institutions they’re learning about and I think that brings a much richer perspective.”

It was this type of collaboration and experimentation that led the group to isolate an unexpected single factor with huge impacts on education that also led to major policy influence.

How Health and Economic Growth are Interlinked

More than a billion people worldwide are at risk of worms, including certain areas of Kenya. It’s a common disease and one that is treated inexpensively, yet the diagnosis is logistically difficult and expensive. For this reason, the World Health Organization has recommended that schools routinely provide deworming medicine in high risk areas.

“It costs four to 10 times as much to do the testing as it does to provide the medicine,” says Kremer. “So, if 90 percent of children are infected, as they were in this particular region, just go ahead and make the medicine available to everyone.”

The NGO initially started working in seven schools but planned to introduce the program to 75 schools over time, phasing in 25 schools annually. By doing this, the results could easily be compared between those in the program and those not yet included. Absence fell by a quarter, disease transmission fell and the percentage of girls continuing and completing their education rose.

“The benefits of this school-based worming approach turns out to be 100 times the cost,” says Kremer. “I hate to be an economist about this but it's such a bargain that had the Kenyan government borrowed to finance this program, they would have made enough in tax revenue that they could have paid this off with interest and come out ahead from a purely financial point of view, even setting aside all of the benefits to the kids and future adults as they earn more.”

Kremer presented their findings to the World Bank offices and the Kenyan government and, after some time, the project was scaled up. Today, the Kenya government is reaching millions of children every year.

“What we’re doing in development economics might seem extremely different, but in each case, we’re engaging practical problems,” he says. “The insights from the practical problems lead to the development and advancement of the theory, which advances the ability to engage with practical problems.”

“If you're analyzing data, you can put in whatever statistical controls you want and there's more scope for the researcher to get the result that they want,” says Kremer, “There's much less scope to do that in a randomized evaluation or with the experimental method.”

Today, Kremer is seen as one of the pioneers of randomized controlled trials, and this approach has not only transformed economics but a range of other fields, including agriculture and healthcare.

These types of collaboration bring economists into very close contact with the people or institutions they’re learning about and I think that brings a much richer perspective.

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A More Experimental Approach to Economics

Committing to Innovation Collectively

The more that Kremer worked on randomized controlled trials, the more he saw how iterative the process could be, a feature more commonly linked to technology companies. While their pace at which some of these private firms operate is “incredible” according to Kremer, the issue is the direction of technological innovation.

“I think we as a society need to think about the institutions that we create, to try to ensure that there's the same level of attention, or at least some attention, being paid to problems that don't have as immediate opportunity for private profit,” he says.

An example of this are diseases that affect poor countries. Pharmaceutical firms successfully develop disease treatments for afflictions that are common in developed countries all the time. They are very profitable in doing so, while also generating huge health benefits. The incentives to research and develop treatments for diseases that primarily affect poor people in developing countries however aren’t as strong. Witnessing this inspired Kremer and Rachel Glennester, his partner and a fellow economist, to write the book Strong Medicine. In the book, they present an approach inspired by the energy of the private sector to tackle health problems affecting poor people around the world, an idea that is now referred to as advanced market commitments.

“The concept of an advanced market commitment is very simple,” says Kremer. “It's that donors commit in advance that if a product is developed that meets certain standards, then they all commit to help finance the purchase of this.”

Kremer and Glennester began with the more distant target of malaria and a closer target of vaccines for strains of pneumococcus, a lesser known disease but one that kills more than a million people annually. The Center for Global Development then got involved focusing on how to transform the theoretical idea into an actual proposal and a commission was set up bringing in people from various fields.

“In this case, the donors committed $1.5 billion to top up the payments that developing countries’ governments and organizations like UNICEF would have made to buy the vaccine in the first place,” he says.

This kind of financial commitment helps create the incentive for the development of the vaccine and ensures those working on the vaccine that it will reach the people who need it most.

“So that's an example of the benefits,” explains Kremer. “It’s to say let’s try to make sure that market incentives are working to serve the full range of human needs.”

There is a strong case for advanced market commitments for infectious diseases today perhaps more than ever. Ensuring a commitment to help pay for the development of vaccines for emerging diseases is vital when the spread and its speed is unknown.

“With coronavirus now and Ebola earlier, people are realizing outbreaks in one part of the world can be very important for the rest of the world,” says Kremer. “Figuring out how to deal with these is of public health importance for all of us and the advanced market commitment could indeed be applied to these. When it comes to communicable diseases, we all should be working together.”

Something that excites Kremer most about the design of advanced market commitments is the scope for iteration and improvement, not only for health needs but a whole range of needs.

“Part of what we need is new technologies,” he says. “This can be a useful tool to make sure we’re developing practical solutions that will actually be used, because with an advanced market commitment firms don't get paid unless they develop products that work to address the social need.”

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When it comes to communicable diseases, we all should be working together.

Advanced Market Commitments as a Tool for Global Health

Climate Change & Economics: Rethinking the Rules of Innovation

As a development economist, Kremer says climate change affects almost every area he works in and that creating the appropriate institutions for technological change will be key going forward.

“I think there's a misperception that we can’t have economic growth and address climate change,” he says. “But we can have economic growth. That's something that people in every country want and people in poor countries need.”

The effects of climate change are already happening all over the world. While developed countries have some level of protection, those in developing countries are far more at risk. Kremer thinks that by coupling the right incentives to existing technology available today and lessons from Silicon Valley, that should be changeable now.

“Private sector firms are using A/B tests which are basically the same idea as the experimental approach that we use in development economics,” he says. “Try different approaches, measure, then go back. Design things that people actually want to use and that might lead to a broader range of firms to invest in developing these technologies.”

He gives the example of wood or charcoal cookstoves being used by people in some of the poorest countries. Not only are these environmentally harmful by emitting harmful types of emissions that cause much higher rates of global warming, they are harmful to human health as well.

“If we could develop alternative cookstoves, that could lead to reduced deforestation,” says Kremer. “It could lead to better human health and it could have a climate impact.”

Innovation to Address Climate Change in Developing Countries

Giving Back to Economics

When Kremer was awarded the prize, alongside Esther Duflo and Abhijit Banerjee, they saw it as an opportunity for the field as a whole. It put their work, and development economics, under the spotlight.

Having an influx of policymakers, both in government and business, who are attracted to this approach—one that favors data rather than spending resources first—has been one of the most encouraging results of the award for Kremer.

“Every time I go to a conference, I see multiple papers where I think this is a great idea but more importantly, they have evidence that it's a great idea, and this is something that could potentially affect millions of people and improve lives,” he says.

Kremer has always encouraged his own students to focus on the research they believe in instead of a continuation of what others are already focusing on.

“Certainly, when I started doing this research, it was not what economists typically did. But in the long run it worked out,” he says. “I think there's sometimes a very glib message that people give, ‘Take more risks, and focus on the big questions.’ I encourage people to do the work they think is important, that they enjoy doing. The rest will usually take care of itself.”

Reflecting back on his own mentor, Larry Weaver, Kremer shares one of their most meaningful interactions. At the time, Kremer was taking physics classes taught by Weaver. Weaver had published a paper in which colleagues had found an error in. While Kremer assumed Weaver would be upset by this, perhaps even embarrassed, he was delighted and told Kremer he was grateful because it helped advance the journey.

He realized in that moment that having the right attitude about science and life should be focusing on the ultimate objective, to redo things if you get them wrong, and that science is a collective enterprise.

“I think that's something that Abhijit, Esther and I all feel very strongly about,” he says. “This is an award not just for what we've been able to accomplish, it's an award for the whole field and the whole movement of researchers, of practitioners, of survey enumerators, of the farmers, and teachers and students we've been talking to, and together that's produced some remarkable insights about better ways to improve education, agriculture, health that are making lives better for millions of people.”

I encourage people to do the work they think is important, that they enjoy doing. The rest will usually take care of itself.

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Hear Michael Spence's view on how countries can grow sustainably while having a long-lasting positive impact.

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