What cash transfers taught us about foreign aid

My friend Lauren Gilbert has launched a new magazine called In Development, aiming to be the New Yorker (or Works in Progress?) for global development. I enjoyed reading the inaugural piece by Paul Niehaus, co-founder of GiveDirectly, on the rise of cash transfers as a form of foreign aid. From the piece, I learnt that a dollar is worth roughly 250 times more to someone living in extreme poverty compared to the average American, mostly because of diminishing marginal utility: at low incomes an extra dollar goes toward basic necessities like food and shelter, while at high incomes it tends to go toward discretionary spending or savings. Another was that Harvard’s IRB nearly killed GiveDirectly’s first RCT on the grounds that giving people money might harm them; they had to argue transfers were safe in order to study whether they were safe. And finally, it was interesting to think about how, while most research on foreign assistance was focused on showing donors how to achieve their priorities, research on cash transfers helps donors understand recipients’ spending and priorities – the most important ones being housing, food and business investment. The idea that people in extreme poverty would spend money they received on alcohol and tobacco instead of basic necessities was in fact unfounded.