Crowdsourcing Economics

An interesting approach to economics, from UC Berkeley economists William FuchsBrett Green, and David Levine: crowdfunding.

But first, some background, because this is fascinating stuff. The typical household in rural Africa is “off the grid.” With no electricity, such households spend a significant fraction of their income on kerosene for lamps. Yet for about $20, they can buy a solar light, which provides a superior source of light and charges their cell phones. (Yes, cell phone use is common, even in rural households with no electricity; they simply walk to the nearest town and pay to charge their phones.)  Given that the light pays for itself in about 6 weeks and lasts for about 3 years, purchasing one seems like a no-brainer. Yet few households have done so.  These intrepid economists are trying to figure out why, and want to see whether the barriers to adoption can be overcome in a profitable way. In order to do so, they are running controlled experiments in rural Ugandan villages using various combinations of incentives and financing arrangements.

It’s a terrific and important research question. The only barrier is that they need funding for their research.  So they’re trying something new: crowdfunding.  You can read all about it here.  Think of it as the Kickstarter of development economics.  But better.  They’re letting donors into the emotional roller coaster that is economic research: For $25, you get updates directly from the professors; for $250, they’ll talk about it over coffee; and for $2,500, they’ll entertain you over dinner.  I know these guys, and I’ve gotta say, even at that highest level, you’re set for a more entertaining, interesting, and inspiring dinner than you would see even at a TED conference, which costs twice as much.

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  1. Jennifer says:

    I love the idea, contributed right away. Thanks for sharing this!

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  2. Seminymous Coward says:

    I like the idea of crowdfunding research well enough, but I don’t see any evidence the researchers have chipped in their own money. It strikes me as odd that they, well-off Berkeley business professors, are asking for funding for their research from the general public without taking that step first. To be clear, they’re only extending credit for the solar gear, so it’s not a pure charity effort. If they did chip in, they should be more upfront with that information, as it’s relevant to assessing their commitment to the project.

    Hot debate. What do you think? Thumb up 11 Thumb down 10
  3. Sean says:

    Could anyone send me a link to the solar-powered light mentioned in the article?

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  4. Brett Green says:

    Seminymous,
    To be crystal clear, you are correct. This is not charity. This is economic research. We are trying to develop and test a sustainable solution to the problem. If successful, we are hopeful that that the results of our research lead to the development of more efficient markets and ultimately increase the utility of households in rural Africa.

    For what it is worth, each one of us has made anonymous donations to the campaign. We have also used a significant portion of our personal research budgets on this project (to the point that they have been almost entirely depleted). Perhaps more importantly is our investment of time and effort.

    Well-loved. Like or Dislike: Thumb up 26 Thumb down 0
    • Seminymous Coward says:

      That’s wonderful. As such, I would suggest making it clear on the project page. I suspect others would find it just as comforting as I do that you value your goals so highly. In fact, it motivated me to contribute.

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    • Unbiased Research says:

      While somewhat off of the point, wouldn’t it be better if the researchers did NOT put their own money into the project? I would think that doing so could lead to biases, unconscious or otherwise, in decisions regarding the data and the interpretation of the results (already an issue as people WANT their research to succeed).

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  5. Ben says:

    This is such an awesome idea. Love Economics and Crowdfunding. Spreading the word to all my friends.

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  6. Carmike says:

    This research has awesome potential to help people who must need it. Count me in; I’m looking forward to dinner.

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  7. JM says:

    Really interesting Justin, thanks!

    Given your interest, I think that you (and the other readers here) would be really interested in some recent research that I have come across that theorizes about crowds and such similar phenomena.

    It’s called “The Theory of Crowd Capital” and you can download it here if you’re interested: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2193115

    In my view it provides a powerful, yet simple model, getting to the heart of the matter. Enjoy!

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  8. Michele says:

    Getting a group together to lend money. I discovered this from a Pakistani friend, apparently this is how one gets around usury laws in Moslims countries. Families or groups of friends get together as a “club” and everyone contributors a little bit to lend one person money. Then next month it’s the next persons turn.

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    • Enter your name... says:

      That’s a good idea.

      One of the things that wasn’t clear to me from the website was how they’re solving the customer’s problem. It says how they’ll structure the small businesses (four lamps, add a markup of 20%), but not how to solve the end-buyer’s problem (which is that the person doesn’t have the $20 to buy one at the original price, much less the $24 to buy one at the retail price).

      A buying club would solve the problem. I can chip in a small part of the price each month, and on one of those months, I’ll get the new light.

      Also, buying one at a time (many families have more than one kerosene light) would start the fuel savings immediately, making it easier to buy the second one.

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      • Brett Green says:

        Great point. The customers problem is obviously something that we need to pay attention to in order to be successful. Fortunately, David [Levine] has done a significant amount of research in this area. He has shown that using a combination of time payments and a free trial works well in experimental work. The idea is something like the following:
        The retailer gives the light to the consumer and says,
        “Use this light for the next week, in doing so, you will save roughly $5 (in kerosene and electricity costs), at the end of the week, you can either give me that $5 and keep the light for another week, or return the light at no charge to you. If you continue this for 5 weeks of payments, the light is yours to keep and requires no further payments.”

        This is analogous to a rent-to-own contract. As you rightly point out, buying clubs are another alternative.

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