Home / Politics / Policy /  Insurance, not loan waivers, can pull the poor out of debt trap

Debt waivers need not always pull the poor out of debt traps, according to research by Dean Karlan, professor at Northwestern University, and co-authors. They conducted field experiments in India and the Philippines, wherein selected small-scale entrepreneurs had their existing debt paid off. Some of them were also given financial education. The aim was to free them of the debt trap. However, the researchers found that most of the subjects went back to borrowing at high rates within six weeks. The authors ruled out the possibility that sustained borrowing is voluntary and profit-maximizing. Instead, they found that income shocks and unavoidable consumption often forced their subjects to return to borrowing. The authors suggest that insurance against income shocks, rather than ad hoc debt relief, may be a better way to fight the debt trap.

Also read: Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines (

The probability of college-educated men in the US finding high-paying jobs has declined since the 1980s while it has increased for women, according to a new National Bureau of Economic Research (NBER) paper authored by Guido Matias Cortes, assistant professor at York University, and co-authors.

By high-paying jobs, the authors refer to jobs in the top 25% bracket of occupations or jobs that require cognitive skills such as problem-solving. They argue that the improved chances for women landing such jobs is partly owing to the increased demand for social skills at the workplace. Research indicates women might be better at skills such as communication and working together. Thus, the percentage of college-educated women holding such high-paying jobs has increased from 54.2% in 1980 to 57.8% in 2014. At the same time, the percentage of male graduates employed in such jobs dropped from 66.2% to 61.4%. The rise in probability of women graduates finding high-paying jobs is all the more remarkable because the supply of women graduates rose at a faster pace than men.

Also read: The “End of Men" and Rise of Women in the High-Skilled Labor Market (

Personality traits of managers can have a large impact on the fortunes of firms, argues a new research paper which examines micro, small and medium firms in Vietnam. Smriti Sharma and Finn Tarp, researchers with the United Nations University’s World Institute for Development Economics Research, find that managers with higher “locus of control" and innovativeness are associated with higher revenue for firms.

“Locus of control" is a psychological concept which indicates how much individuals believe that outcomes in their life are within their control.

On the other hand, risk aversion is positively correlated with the adoption of safety measures, although it is also associated with lower revenue.

Also read: Does managerial personality matter? Evidence from firms in Vietnam (

Contrary to conventional belief, banks are not more opaque than other firms, suggests new research by Fabrizio Spargoli and Christian Upper from the Rotterdam School of Management. They compared data on returns from trade in stocks by corporate insiders in US banks with those by other firms.

If banks were indeed opaque, then stock purchases by senior bank officials should have been followed by rise in equity prices. Conversely, insider stock sales should be followed by a drop in stock prices. In other words, if banks are opaque, then bank officials would have better information on the future performance of their institutions than outside investors. However, authors’ analysis suggests that banks are no more opaque than other firms. Specifically, stock sales by bank insiders were not followed by negative stock returns.

Also read: Are banks opaque? Evidence from insider trading (

Central banks will most likely continue to have an important role even in the age of digital money, argued Agustín Carstens, general manager, Bank for International Settlements (BIS) in a recent speech. BIS is the bank of central banks. He cited history to argue that money needs to have a basis of trust, supported by some credible institution. To illustrate, before the Federal Reserve was created in the US in 1913, the monetary system was often rocked by crises of credibility, as between 1837 and 1863 when many banks issued their own currency. Specifically, he cast doubts on the efficiency and safety of the distributed ledger technology, which forms the basis for cryptocurrencies. He predicts that credible money will continue to arise from central bank decisions taken in public interest.

Also read: Money in the digital age: what role for central banks? (

Economics Digest runs weekly, and features interesting reads from the world of economics.

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