Randomized controlled trials are the flavor of the month in development economics, with their keenest advocates having just been awarded the Nobel Prize. But can this experimental approach really be counted on to produce better economic policies?
LONDON – How can we know if an economic policy is achieving its stated objective? Well, we can create two similar groups, randomly allocate the “treatment” to only one of them and measure the results. By comparing the groups, we will obtain a reliable estimate of how effective the policy is.
This technique, known as randomized controlled trials, or RCTs, had long been used in medicine and social policy. By applying it to development economics, Esther Duflo, Abhijit Banerjee, and Michael Kremer revolutionized how many economists work – and won the Nobel Prize last month.
The achievement was both intellectual and organizational: a global community of randomistas has emerged, committed to using RCTs to change the world. New evidence would cause developing-country governments to discard bad policies and adopt good ones.
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