In a recent op-ed in The New York Times, George Loewenstein, one of the founding fathers of behavioural economics, struck a jarring note of caution on the euphoria about “nudge”-based solutions to public policy problems (the article was co-authored by Peter Ubel, professor of business and public policy at Duke University). They wrote: “Behavioural economics should complement, not substitute for, more substantive economic interventions,” and that it alone “is not a viable alternative to the kinds of far-reaching policies we need to tackle our nation’s challenges”.
There is no denying that recent interest in behavioural economics is increasingly showing signs of irrational exuberance, with perfect panacea claims to every problem. Yet, could it not be that behavioural economics, stripped of its magic-pill tag, has perhaps a specific and critical last-mile role in resolving problems facing development policymaking?
The great development challenges of the past half century have involved creating infrastructure— physical and personnel—to deliver basic welfare functions of the government. For instance, health and education required the construction of hospitals and schools, with its ensuing recruitment of doctors, nurses and teachers. Agriculture entailed investments in irrigation and farm inputs. Provision of civic services involved massive investments in water, sewerage, electricity and public health services.
Government programmes were designed to ensure adequate availability of these basic requirements. It was presumed that once these programmes were put in place, the objectives would be automatically achieved. The qualitative side of the problem—the one that focuses on the final outcomes—was seldom the object of much attention.
Illustration: Jayachandran / Mint
This approach was understandable since it was a time when the basic ingredients were themselves deficient. How do we talk about learning outcomes when we do not have enough teachers and schools; control child mortality and maternal deaths without adequate hospitals or doctors to provide even primary healthcare; or talk about sanitation and personal hygiene when the majority of households do not have water, sewerage and toilets?
Today, though a considerable amount of work still needs to be done, there have been significant advances to meet these infrastructure deficiencies. However, there is now ample evidence to prove that while all these inputs were necessary, they have not been sufficient in achieving the objectives in education, healthcare, nutritional support, agriculture and so on.
A different set of challenges has emerged—the age-old problem of getting the horse to drink the water. These include diverse challenges such as getting people to avoid open defecation and use their toilets, parents to send children to school and then college, patients to adhere to a medication schedule, economically deprived people to save more, citizens to keep surroundings clean, and so on. Harvard economist Sendhil Mullainathan classifies them as daunting “last-mile” problems, and advocates marrying scientific method with art, psychology and marketing to address them.
It is, therefore, appropriate to reach beyond the inputs-driven paradigm and explore what it takes to get a teacher to teach, a doctor to treat, citizens to assume civic responsibilities, farmers to improve productivity, and so on. In view of the complex nature of human interactions, micro-founded public policy approaches that take into account the behavioural biases of individuals may now be more effective.
The conventional regulatory and administrative approaches to addressing such last-mile problems have failed to yield the desired results, leaving us with only incentives and behavioural nudges. Appropriately tailored incentives can help design the most effective decision-making environment. And carefully structured behavioural nudges, designed to act at decision-moments, can channel actors to respond to the incentive systems and bite the bullet.
Recent research in behavioural economics has shown that even when incentives are in place, people often take suboptimal decisions. This arises either due to various cognitive biases such as decision-making inertia or paralysis, complexity of the decision-making environment, preference for front-loaded benefits and back-ended costs, inclination towards short time horizons, and so on.
Let us consider a nurse involved in antenatal and immunization activities. She would need to record and maintain reports of various indicators relating to the mother and the child over nearly two years, and then take specific time-bound or remedial actions based on those. However, even with the best regulatory architecture and incentive structures, there are several practical problems that come in the way of effective implementation. The nudge in this case can be a technology-based solution that uses mobile phones to both collect information and then remind the nurse about her specific action at the appropriate moments.
Similarly, other critical modern-day public policy problems involving last-mile challenges, such as water and energy conservation, littering and segregation of garbage at homes, promotion of safe sex, controlling drinking, smoking, crime and obesity, and so on may be more effectively tackled with a careful mixture of incentive structuring and facilitative nudges.
None of this is to play down the importance of interventionist hard choices such as effective supervision and taxes. They play an important role in aligning the incentives of individuals to desired policy objectives. However, insights from behavioural economics and nudge-based interventions can play a critical role in bridging the last-mile inertia that often defines the success or failure of a programme.
Gulzar Natarajan is a civil servant. These are the author’s personal views
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