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Abhijit Banerjee (58), Esther Duflo (46), and Michael Kremer (54) have won the 2019 Nobel Memorial Prize in Economic Sciences. Banerjee and Duflo hail from Massachusetts Institute of Technology (MIT) and Kremer is associated with Harvard University. The prize was conferred on them for their path-breaking contribution on “experimental approach to alleviating global poverty”. Duflo is the youngest and second woman to receive the Economics Nobel.

One of the major issues of developmental economics is to find out ways to enhance material lives of people. Widespread poverty is a curse of human civilisation which has been holding back human progress.

The contribution of the trio in developmental economics has been immense as they have devoted themselves to devising ways to reduce poverty. They have popularised a method known as Randomised Control Trial (RCT) in economics and social sciences. The RCT, however, is not a new method. It has been extensively used in the pharmaceutical industry. However, its use in economics and social sciences is new; being introduced by the trio. The application of this method in the field of economics has also invited a fair share of criticism. The Nobel Prize may, however, lead to a wider acceptance of this methodology in economics.

Randomised Control Trial

The poor often lack many necessities of life like education, access to good health facilities, healthy food and bank accounts. They also often lack important information like the importance of free immunisation for children, proper use of fertilizers in farming and how to remain protected from some diseases.

According to Kaushik Basu, Professor, Cornell University, the RCT methodology has helped in establishing certain causal relations in economics. He cited the study of Esther Duflo in many panchayats in West Bengal and Rajasthan, where using the RCT methodology, she could positively establish a causal relationship between improved availability of public goods and having elected women leaders in local governance institutions.

RCT method in development research

The RCT methodology in developmental economics tries to explain why particular social and economic interventions work better as compared to other interventions. It is a large scale randomised method where the subject under study is divided at random into two equal parts. One part is to be provided with some benefits. This group is known as the treatment group and the other group which is not provided with any benefits, is the control group. The benefits may be different in different cases. It may be providing subsidised finance or fertilizers or food or immunising children or providing compulsory education or anything that is necessary for their (the treatment group’s) well-being. After a period, the achieved status of the treatment group (which has received the support) is scrutinised along with the overall difference between the changed statuses of the individuals of the two groups. Depending on the results, the researchers may review the whole process and subsequently proceed to policy prescription.

In the earlier theories of economic development, the line of approach to a large extent was related to aggregative or general feature analysis and policy suggestions. Arthur Lewis, Amartya Sen and many other developmental economists have studied how to alleviate poverty and improve the lives of the poor. However, the approach of this trio is quite different. 

Their approach can be better understood through this extract from the book ‘Poor Economics’ written by Banerjee and Duflo. It states, “If we resist the kind of lazy, formulaic thinking that reduces every problem to the same set of general principles; if we listen to poor people themselves and force ourselves to understand the logic of their choices; if we accept the possibility of error and subject every idea, including the most apparently commonsensical ones, to rigorous empirical testing, then we will be able not only to construct a toolbox of effective policies but also to better understand why the poor live the way they do.”

A few questions on RCT The method of RCT in drug research is not without criticism.

In many medical researches, a lot of medicines have been passed for human use after trial through the RCT method but many of them were later found to be unsafe. The same may be true in social research.

A section of economists think that the RCT methodology involves huge time and money. Besides, when some intervention is applied to eradicate a socio-economic problem and that gives positive results, it does not necessarily mean that particular intervention is the only reason for the positive outcome. Actually, there may be different factors that may have contributed to the result. Despite its challenges, a large number of socio-economic phenomena are being increasingly explained by the RCT method and that could be the foremost reason behind the Nobel recognition.