2. 1 THE ALCHEMIST OF THE POOR

3. 2 “ERIK THORBECKE, THE ALCHEMIST OF THE POOR” A SHORT RETIREMENT TALE BY ALAIN DE JANVRY AND ELISABETH SADOULET DEDICATED TO ERIK ON BEHALF OF NEUDC IN ADMIRATION AND FRIENDSHIP

4. 3 DEFINITIONS DEVELOPMENT ALCHEMIST : “AN ECONOMIST WITH MAGIC POWERS OF TRANSMUTATION OF POVERTY INTO WEALTH” ALCHEMIST: “A PERSON WITH MAGIC POWERS OF TRANSMUTATION OF BASE METALS INTO GOLD”

5. 4 PART I LEARNING FROM THE ALCHEMIST HOW TO MANAGE POVERTY ERADICATION PROGRAMS?

6. 5 THE ALCHEMIST’S SECRETS: ERIK’S FIRST PRINCIPLE OF ALCHEMY INTRODUCE P2-BASED WELFARE BUDGETS IN NATIONAL CONSTITUTIONS

7. 6 1999 MEXICAN CONSTITUTION CHAPTER V, ARTICLE 34 “CENTRAL GOVERNMENT TRANSFERS WILL BE ALLOCATED ACCORDING TO THE SEVERITY OF POVERTY” (THE FGT-P2 CRITERION AT WORK)

8. 7 SIMULATION EXERCISE: WHAT WOULD A P2-BASED WELFARE PROGRAM DO TO THE MEXICAN POOR?

9. 8 Po = 50%. Source: INEGI data, 1995

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16. 15 It’s too expensive!

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20. 19 It’s in the constitution!!

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23. 22 ALCHEMIST’S OUTCOME OF THE P2-BASED WELFARE PROGRAM INITIAL Po = 50% CURRENT Po = 0% 88% OF THE FORMER POOR ARE NOW RICHER THAN THE 2% RICHEST IN THE COUNTRY

24. 23 ERIK’S SECOND PRINCIPLE OF ALCHEMY “USE SAM PATHS MULTIPLIERS TO INCREASE THE INCOME OF THE POOR”

25. 24 NET GAIN FOR THE POOR $100

26. 25 NET GAIN FOR THE POOR $150

27. 26 NET GAIN FOR THE POOR $50

28. 27 NET GAIN FOR THE POOR $200

29. 28 NET GAIN FOR THE POOR $250

30. 29 NET GAIN FOR THE POOR $300

31. 30 NET GAIN FOR THE POOR $$$$

32. 31 ALCHEMIST’S OUTCOME OF SAM MULTIPLIER-BASED WELFARE PROGRAM AFTER ∞ NUMBER OF ITERATIONS THE POOR HAVE BECOME ∞-TELY RICH

33. 32 PART II THE ALCHEMIST’S FUTURE SOLVE THE ALCHEMIST’S RETIREMENT PROBLEM

34. 33 PROBLEM: REBALANCING OF ACTIVITIES UNDER FULL INCOME CONSTRAINT

35. 34 CHARLA AND GRANDCHILDREN TENNIS MANAGE CALIFORNIA HOMESTEAD WITH MILLENARIAN SEQUOIAS COOPERATE WITH DEVELOPMENT ECONOMISTS AT U.C. BERKELEY ALMA MATER MORE TENNIS CONNECT WITH ROOTS IN DUTCH HISTORY VISIT FORMER STUDENTS AROUND THE WORLD VOLUNTEER TIME FOR DEPARTMENTAL ADMINISTRATION (!!!) MORE MORE TENNIS MORE TIME TO RESEARCH OPTIONS FOR TIME REALLOCATION?

36. 35 ASSUME THE SOLUTION: MORE TIME TO RESEARCH ERIK’S THREE MAIN RESEARCH AREAS: 1. ECONOMY-WIDE MODELING IN SAM-CGE 2. INSTITUTIONS AND MARKET CONFIGURATIONS 3. POVERTY INDICATORS AND STRATEGIES

37. 36 PART III MAKE GRATUITOUS SUGGESTIONS FOR RESEARCH AGENDA IN EACH AREA

38. 37 AREA 1 ECONOMY-WIDE MODELING IN SAM-CGE ERIK’S WORK: IMPORTANT POLICY QUESTIONS IN GENERAL EQUILIBRIUM FRAMEWORK. NEW CHALLENGE: CGIAR problem. How to optimize the use of agricultural technology to reduce poverty through direct and indirect effects? Direct effects: benefits for poor adopters Indirect effects: benefits to poor else than adopter through: - Price of food - Employment creation in agriculture - Growth linkages

39. 38 IMPORTANCE OF PROBLEM CGIAR: 16 INTERNATIONAL CENTERS (IFPRI, ETC.) 1300 SCIENTISTS US$350 MILLION/YEAR DID THE GREEN REVOLUTION REFOCUSING FROM COMMODITIES TO POVERTY HOW DO? WHAT TECHNOLOGY FOR WHOM?

40. 39 PRELIMINARY RESULTS SAM-CGE

41. 40 AREA 2 INSTITUTIONS AND MARKET CONFIGURATIONS ERIK’S WORK: MARKET/NON-MARKET TYPES OF CONFIGURATIONS --------------->TRANSACTIONS (EXOGENOUS)(ENDOGENOUS) Transactions costs: Household market integration: Observables (surveys) Seller, buyer, self-sufficient; Non-observables? Supply and demand responses.

42. 41 FUNDAMENTAL CONTRIBUTION TO THE NEW INSTITUTIONAL ECONOMICS MEASURE THE MAGNITUDE OF TRANSACTIONS COSTS EVEN THOUGH THEY ARE LARGELY UNOBSERVABLE

43. 42 PROPOSITION: OBSERVE HOUSEHOLD BEHAVIOR AS PRODUCERS AND CONSUMERS UNDER TRANSACTIONS COSTS (TRANSACTION) INFER FROM THIS WHAT ARE THE UNDERLYING TRANSACTIONS COSTS (CONFIGURATION)

44. 43 STRATEGY TO MEASURE TRANSACTIONS COSTS Proportional transactions costs (PTC) in selling and buying: Effective price paid for purchase Effective price received for sale Fixed transactions costs (FTC) in entering and exiting markets:

45. 44 S&D FOR STAPLE FOOD. NO TC

46. 45 S&D WITH PTC IN SELLING

47. 46 S&D WITH PTC IN SELLING & BUYING

48. 47 S&D: THREE MARKET INTEGRATION REGIMES

49. 48 S&D WITH PTC AND FTC FOR SELLER: THRESHOLD

50. 49 S WITH PTC & FTC IN SELLING AND BUYING

51. 50 ESTIMATE:CENSORED SUPPLY THRESHOLD QUANTITY FOR SELLER SUPPLY FOR SELF-SUFFICIENT.

52. 51 ESTIMATION OF PTC FROM NON-LINEAR SEGMENT OF CENSORED SUPPLY:

53. 52 ESTIMATION OF FTC SOLVE FOR IN EQUIVALENT VARIATION FOR EQUALITY OF UTILITY OF BEING IN SELF-SUFFICIENCY OR IN MARKET AT ENTRY THRESHOLD:

54. 53 AREA 3: POVERTY INDICATORS ERIK’S WORK: CELEBRATED FGT INDICATOR OF SEVERITY OF POVERTY WHY P SQUARED? WHY NOT 1.5 OR 3? DOES 2 OVER OR UNDER ESTIMATE THE WELFARE COST OF INCOME DEFICITS?

55. 54 PROPOSITION: USE Pu AS ALTERNATIVE TO P2 Pu MEASURES THE UTILITY LOSS DUE TO THE INCOME DEFICIT. V = INDIRECT UTILITY FUNCTION

56. 55 UTILITARIAN APPROACH TO THE MEASUREMENT OF Pu ASSUME A PARAMETRIC FORM OF V. V SAME FOR ALL HOUSEHOLDS, BUT FUNCTION OF HOUSEHOLD CHARACTERISTICS. USE BACKWARD INTEGRATION: ESTIMATE DEMAND FUNCTIONS; RECOVER THE PARAMETERS OF V

57. 56 SPECIAL CASE IF UTILITY IS SEPARABLE IN AGGREGATES CAN RECOVER V FROM A SINGLE DEMAND EQUATION, e.g., FOOD EXAMPLE INDIRECT ADDILOG V APPLIED TO MEXICAN HOUSEHOLD FOOD CONSUMPTION AND EXPENDITURE DATA

58. 57 WEIGHTS OF INCOME DEFICIT IN P1: WEIGHT = 1. CONSTANT IN P2: WEIGHT = LINEAR IN y IN Pu: WEIGHT EXPONENTIAL IN y

59. 58 WEIGHTS OF INCOME DEFICIT

60. 59 CONCLUSION: SQUARE IS NOT ENOUGH! (IN THIS CASE) NEED USE HIGHER EXPONENTIAL (OR OTHER FUNCTIONAL FORM) TO CAPTURE THE SEVERITY OF POVERTY AS A WELFARE LOSS

61. 60 RETIREMENT TALE EPILOGUE

62. 61 AS ANOTHER ALCHEMIST (IN PAULO COELHO) SAID: “TO REALIZE ONE’S DESTINY IS A PERSON’S ONLY OBLIGATION” AS DEVELOPMENT ECONOMISTS (OUR DESTINY), THIS GIVES US QUITE A CHORE TO DO! AS A DEVELOPMENT ALCHEMIST, YOU GAVE US A MAGNIFICENT ROLE MODEL TO EMULATE.

63. 62 WE THANK YOU FOR THIS AND WISH YOU SUCCESS AND HAPPINESS IN YOUR NEW TIME ALLOCATION SOLUTION THE END