POVERTY, AGENCY, AND DEVELOPMENT

Abstract

This essay provides an account of four interrelated ideas. First, a person who is not poor by the standard conception of poverty can still be functionally poor. Second, poverty is a relationship between the poor and their environment (community, local markets, and local institutions). Third, poverty is a determinant of agency and impedes its exercise. Fourth, promoting agency promotes development. I conclude that agency is central to understanding both poverty and development.

Full text

POVERTY, AGENCY, AND DEVELOPMENT
BYT R*
Abstract: This essay provides an account of four interrelated ideas. First, a person who is not
poor by the standard conception of poverty can still be functionally poor. Second, poverty is a
relationship between the poor and their environment (community, local markets, and local
institutions). Third, poverty is a determinant of agency and impedes its exercise. Fourth,
promoting agency promotes development. I conclude that agency is central to understanding
both poverty and development.
KEY WORDS: poverty, agency, development, gender
I. I
Consider the lives of a man and woman, Ernest and Hope, as once
described to me.
1
Ernest grew up in the only concrete house in his small
village. His father was a jurist and his mother a housewife. They owned a bit
of farmland and had high social standing in the local community. Ernest’s
two older brothers graduated from high school, got married, and left the
village to explore and build their lives. Ernest was attending a local college,
living with his parents, and the future possibilities for him looked bright.
However, unexpectedly, everything turned topsy-turvy. His father suddenly
died due to cardiac arrest and his mother followed three months later. During
those days, the medium of long-distance communication was limited to
postal mails and it took over two months for Ernest to exchange letters with
*Department of Agricultural and Resource Economics, University of Arizona,
tauhid@arizona.edu. Competing Interests: The author declares none. I am grateful to
numerous individuals and households in South Asia, Sub-Saharan Africa, the Caribbean,
the Navajo Nation, and other Native Indian communities in the United States for sharing
with me their stories and experiences, which have deeply informed and enriched my
understanding of the human condition and the predicaments of the poor. I am thankful to
Martin Dufwenberg, Almudena Fernandez, Johannes Haushofer, Renaye Hlavinka, Karla
Hoff, Cathleen Johnson, Naila Kabeer, Kunal Mangal, Charles Noussair, Irawati Parnerkar,
Yana Rodgers, Santiago Rodriguez, Fernando Teson, and Claudia Williamson for their helpful
discussions and suggestions. I have benefited enormously from my discussions with David
Schmidtz on the issues of poverty, agency, and development. This essay would not be the way
it is without the influence of his work on agency, freedom, and justice. The usual disclaimer
applies, namely, that any remaining errors are my responsibility.
1
Their names have been changed and some details omitted to protect their privacy.
doi:10.1017/S0265052523000353
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https://doi.org/10.1017/S0265052523000353 Published online by Cambridge University Press

his brothers. Having dropped out of college, he spent the next year or so
aimless, ultimately finding comfort at a shrine three miles away, where he
befriended several families who became his support system. There, Ernest
met the woman he married, despite some intercaste barriers.
2
Then it was
time for him to figure out his livelihood. The oldest brother, who had natu-
rally assumed the role of the patriarch in the family, visited the family home
with his wife and children and decided that Ernest needed to stay in the
village to look after home affairs, their two families, and farming. It was a
good plan. The youngest brother had the responsibility for the home while
the oldest provided outside income. Land ownership, living in a concrete
house, having a source of off-farm support, and some college-level education
gave Ernest the profile of an honorable and wise man. In those days, a
family’s prestige and codes of conduct were more intergenerationally trans-
ferable than they are today. Ernest benefited from his deceased father’s
standing in the community.
As Ernest described it,everything was going according to plan, and he had
even higher aspirations for his sons. In hindsight, though, the plan was
faulty. One day Ernest found himself very ill and soon learned that he had
a chronic illness, which ruled out any possibility of him contemplating
another career. Soon after, the arrangement with his brother fell apart. Their
two families could no longer live as one. The timing could not have been
worse. Ernest’s children were growing up and had increasing financial
needs. Unable to work, Ernest had no source of cash income, which was
necessary for farming and household needs. He started relying on his social
capital, borrowing money from relatives and friends, but his ability to do
that quickly dried up. Ernest could have eased his financial troubles either by
lowering the educational aspirations that he had for his sons or selling
parcels of his share of farmland. Determined man that he was, Ernest was
unwilling to do either. He saw the redemption of his own perceived failures
in his sons’success and he was unwilling to sell any parcels of farmland
because that would tarnish the prestige of his late parentsand his brothers as
well as his own public image. There was another reason for his unwilling-
ness: Ernest did not have well-defined property rights over his share of the
family farmland.
3
As his challenges were turning into constraints, they were also becoming
obvious to others. Once a source of wisdom for community members, Ernest
became a subject of ridicule. Ernest did not say so, but he had lost his own
self-esteem and dignity, which was reflected in his avoidance of others.
Ernest lived a good part of his life in struggle.
Now consider the life of Hope. Her parents had a bit of land, but they had
to marry three daughters and provide for the education of three sons. Hope
2
The caste system is a centuries-old, intergenerationally transferable by birth, social-
stratification system prevalent especially in India. Upper castes have higher social status.
Mobility in the hierarchy is restricted. Intercaste marriages are rare even today.
3
Ken Schoolland, “Property Rights and One Indian Village: Reform, Enterprise, and
Dignity,”Education About Asia 20, no. 3 (2015): 31–39.
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learned to read and write at home and had no clear aspirations beyond those
that her parents had for her. By her own account, at the age of twenty or so,
Hope “married up,”which came with an improved housing situation, a
caring husband, and a future family to look forward to. By her fifteenth
wedding anniversary, Hope was a mother of two daughters and four sons.
She had no direct interactions with the local community, markets, or insti-
tutions, and rarely stepped outside of her marital home. When she did, it was
for a medical reason or to visit relatives. For the latter, her husband’s consent
and cooperation were necessary. A day was not long enough for Hope to do
her work, starting and ending with cleaning, washing, cooking, and feeding
the family in between. By custom, the women of the house ate after the men
had their meals and Hope never called her husband by his name.
Everything seemed to be going fine until her husband’s health started
deteriorating. He came to suffer frequent physical pain. Meeting the growing
needs of a large family became a daily challenge. The scope of doing some-
thing about it was limited for Hope. The possibility of an outside job existed
in theory, but it was unavailable to Hope because it was a norm that the
women of her husband’s family did not work outside the home. Hope thus
became entrepreneurial at home. Curtailing basic needs, economizing on
cooking ingredients, reinforcing her daily contribution to the joint household
chores, and raising kids to sell them as mature goats were Hope’s way of
helping her husband. Hope had high aspirations for her sons and she
believed in the power of prayer.
Ernest and Hope were a couple. Their older daughter, the first-born child,
attended primary school while the younger daughter graduated from high
school. Both are housewives with children. Their oldest son graduated from
a university, serving as a role model for his younger brothers and guiding
them successfully through universities.
There is clearly a lot to be read into and learned from the lives of Ernest
and Hope. The lessons I draw from their story are about the nature and
dynamics of poverty, agency, and development.
4
Ernest did not end up as
poor in any standard sense. Rather, Ernest became “functionally poor,”
which I define as the state in which a person exhibits the characteristics of
the economic and psychological lives of the poor. Ernest became unable to
exercise his agency, with important consequences, including failure to meet
the basic nutritional requirement to be determined as nonpoor. Hope did
not end up as a poor woman either, but she had poor agency and no ability
or scope for exercising the agency she had. Each lived life is a unique
journey, yet their lives resonate with more than one billion people around
the world who live on under $2 a day.
To be more precise about respects in which their lives are impoverished,
the following elements are required. First, we need to consider poverty in
4
Their story underscores the roles of cultural and social norms, traditions, and honors; self-
esteem and dignity; local community, markets, and institutions; property rights, aspirations,
and effort; and the intergenerational transmission of norms and aspirations in the nature and
dynamics of poverty, agency, and development.
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terms of the relationship between the poor and the environment in which
they live and function. For some,all it takes to have a road out of poverty is a
modicum of hope, luck, aspiration, and earnest effort. Understanding per-
sistent poverty, though, requires an understanding of a person’s relationship
with his environment and what it means to be functionally poor. Second, we
need to consider how poverty factors into the determination of agency and
its exercise. Ultimately, however, we need to recognize the primacy of
agency in the durable escape from poverty and for development.
The remainder of this essay is organized as follows. In Section II,Ibriefly
describe the evolution of thinking on poverty and draw upon recent
empirical studies to characterize the economic and psychological lives of
the poor. Drawing on Amartya Sen’s entitlement approach to starvation
and famines, I argue that a person who is not poor (either absolutely or
relatively) can be functionally poor. In Section III, I distinguish between
agency’sconstituentsanditsexercise.InSection IV, using insights from
empirical literature in economics and psychology, I discuss the role of
poverty both as a determinant of agency and as impediment to exercising
agency. In Section V, drawing on literature in political science and eco-
nomics, I provide empirical support for the thesis that increasing individ-
ual (collective) agency promotes individual (collective) development, and
then offer some conclusions in Section VI.
II. P
In his classic, Poverty and Famines: An Essay on Entitlement and Deprivation,
Amartya Sen describes how to conceptualize poverty:
The first requirement of the concept of poverty is of a criterion as to
who should be the focus of our concern. The specification of certain
‘consumption norms’,orofa‘poverty line’, may do part of the job:
‘the poor’are those people whose consumption standards fall short of
the norms, or whose incomes lie below that line. But this leads to a
further question: is the concept of poverty to be related to the interests
of: (1) only the poor, (2) only the non-poor, or (3) both the poor and the
non-poor.
5
Sen dismisses the idea that the concept of poverty should be concerned
only with the nonpoor. He finds the last alternative somewhat appealing
because it is broad-based and unrestrictive, given that the penury of the poor
affects the well-being of the nonpoor. Ultimately, however, Sen argues for a
conception of poverty based on the first option while emphasizing that its
adoption does not deny that the suffering of the poor themselves may
depend on the condition of the nonpoor. Sen is right that, at any given point,
5
Amartya K. Sen, Poverty and Famines: An Essay on Entitlement and Deprivation (New York:
Oxford University Press, 1981), 9.
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to determine whether a person is poor or not, one must look at his or her
interests. However, I shall argue that to understand persistent poverty and
functionally poor requires us to consider what influences the well-being of the
poor. Such influences include the local community (which includes the
nonpoor), markets, and institutions.
In the context of a concept of poverty that relates only to the interests of the
poor, there has been a significant shift in how poverty is defined.
6
On the
biological approach, poverty is defined in terms of the sufficiency of total
earnings to obtain the minimum necessities to maintain physical efficiency.
7
However, this approach has been criticized on three interrelated grounds:
(1) variations in the physical features of people, the nature of their work, and
the conditions under which they work; (2) the conversion of minimum
nutritional requirements into minimum food requirements depends on what
people consume; and (3) the difficulty of coming up with an acceptable
definition of minimum requirements for nonfood consumption.
8
While
Sen is sympathetic to these criticisms, he finds some merit in the biological
approach to poverty. According to Sen, the concept of poverty need not
be sharp.
The relative-deprivation approach defines poverty in terms of
deprivation,
9
which raises two questions. First, is poverty about conditions
or feelings of deprivation? While some have argued that it is about the
conditions,
10
others do not see conditions and feelings of deprivation as
independent of each other.
11
Second, how does one determine the appro-
priate reference group, for example, people living in the same region, city,
county, or country?
Widely used poverty measures do not reflect the timing and frequency
dimensions of poverty. Official measures of poverty are based on household
data that is normally collected in a census or nationally representative sam-
ple surveys. A household may be estimated to be nonpoor over the time
period measured in the census or survey and yet be poor for several months
within that time period. Given the tendency of the poor to fall sick frequently
or to feel weak, their income over the course of a year is volatile. As a result,
they could be poor for the better part of the year but be identified as nonpoor
6
Different approaches to poverty include: (a) the biological approach, (b) the inequality
approach, (c) the relative-deprivation approach, (d) the value-judgment approach, and (e) the
policy approach. These are explored in Sen, Poverty and Famines.
7
B. Seebohm Rowntree, Poverty: A Study of Town Life (London: Macmillan, 1902), as reported
by Sen, Poverty and Famines, 11.
8
See Rowntree, Poverty; M. Rein, “Problems in the Definition and Measurement of Poverty,”
in The Concept of Poverty, ed. Peter Townsend (London: Heinemann, 1970); and Peter Town-
send, “Poverty as Relative Deprivation: Resources and Styles of Living,”in Poverty, Inequality,
and Class Structure, ed. D. Wedderburn (Cambridge, UK: Cambridge University Press, 1974),
15–41, as reported by Sen, Poverty and Famines,11–13.
9
W. G. Runciman, Relative Deprivation and Social Justice (London: Routledge & Kegan Paul,
1966); Peter Townsend, ed., The Concept of Poverty (London: Heinemann, 1970).
10
Townsend, “Poverty as Relative Deprivation.”
11
Sen, Poverty and Famines.
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because their poverty status is based on whether their annual income
exceeds the poverty line.
12
An important dimension of well-being is that a person might be vulner-
able to poverty, so various measures of such vulnerability at a household,
regional, and national level have been proposed.
13
However, the widely
used measures of poverty are based on annual income or consumption.
They do not factor in how many times a person falls below the poverty line
during a given year.
Income- (or consumption-) based measures of poverty, however, are
inadequate because poverty is multidimensional; it entails poor health,
lack of education, inadequate living standards, poor quality of work, the
threat of violence, and living in areas that are environmentally hazard-
ous, among other things.
14
Reconsider the lives of Ernest and Hope. By
their own accounts, they began their married life living in the only
concrete house in their village. Ernest had inherited a bit of farmland
and he had some college-level education. However, as they recounted to
me, having three meals a day for them was difficult and often the women
of their household did not have enough to eat. If one were to look at food
and nonfood aspects of poverty and their minimum requirements, Ernest
and Hope’s household was likely not deprived in any meaningful sense
of what ought to be considered the minimum required for nonfood
aspects of poverty. Any reasonable aggregation of their food and non-
food consumption (such as housing) would designate them as nonpoor.
Were they nonpoor, especially by the relative-deprivation approach to
poverty (relative to their village)? Should it matter that they were
living in the best house in the village and owned a bit of land? They
were, by conventional standards, nonpoor, yet they were effectively
economically poor.
12
Joshua D. Merfeld and Jonathan Murdoch, “Poverty at High Frequency”(unpublished
manuscript, 2022), https://conference.iza.org/conference_files/Statistic_2022/merfeld_
j24118.pdf.
13
Rosario Turvey, “Vulnerability Assessment of Developing Countries: The Case of Small-
Island Developing States,”Development Policy Review 25, no. 2 (2007): 243–64; Robert Holz-
mann and Steen Jorgensen, “Social Risk Management: A Conceptual Framework for Social
Protection and Beyond,”International Tax and Public Finance 8 (2001): 529–56; Wim Naude,
Amelia Santos-Paulino, and Mark McGillivray, eds., Vulnerability in Developing Countries
(Tokyo: United Nations University Press, 2009), https://collections.unu.edu/eserv/
UNU:2548/ebrary9789280811711.pdf. In economics, household vulnerability is the risk that
a household falls into poverty because of either the household’s characteristics or characteris-
tics external to the household. See Stefan Dercon, ed., Insurance against Poverty (Oxford: Oxford
University Press, 2005).
14
Sabina Alkire and James Foster, “Counting and Multidimensional Poverty
Measurement,”Journal of Public Economics 95, nos. 7–8 (2011): 476–87. This view is inspired
by Amartya Sen’s capability approach. The human development index of the United Nations
Development Program (UNDP) is another attempt to capture non-economic aspects of poverty
and development.
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A. The economic and psychological lives of the poor
Table 1 summarizes the economic and psychological lives of the poor.
15
The economic lives of the poor fit some of their typical descriptions: they
have large families, do not eat enough, fall sick frequently, do not save, and
invest little in education. On the other hand, some of the characteristics are
contrary to commonly held beliefs about them: they are entrepreneurial, do
not save for lack of access to good financial institutions, do not spend every
penny on food because they like to enjoy things that others do (such as
festivals and weddings), and seek new opportunities such as migration to
cities. However, their migration to cities is temporary because they prefer
social ties over money and rural communities provide informal insurance
that the cities do not.
16
Until a decade ago, it was not mainstream in economics to study the
psychological lives of the poor, which is not surprising, given the widely
held belief that the poor and nonpoor differ only in economic resources and
social capital. We now know that the poor are subject to biases and judg-
ment errors not because they are lazy and unthinking, but because they are
preoccupied with hunger, managing sporadic income, and juggling
expenses. Thinking and fretting about money taxes their mental band-
width.
17
B. Functionally poor
I define a person to be functionally poor if his states fit the economic and
psychological lives of the poor described in Table 1. Those who are not
poor in terms of the standard definition may experience many of the con-
ditions of poverty, including failing to meet the nutritional requirement.
18
This can happen for at least three reasons. First, the person can suffer from
the psychology associated with poverty. Second, he can experience
15
Based on recent studies on the economic and psychological lives of the poor. See Abhijit
Banerjee and Esther Duflo, “The Economic Lives of the Poor,”Journal of Economic Perspectives 21,
no. 1 (2007): 141–68; Sendhil Mullainathan and Eldar Shafir, Scarcity: Why Having Too Little
Means So Much (New York: MacMillan, 2013); Anandi Mani et al., “Poverty Impedes Cognitive
Function,”Science 341, no. 6149 (2013): 976–80; Johannes Haushofer and Ernst Fehr, “On the
Psychology of Poverty,”Science 344, no. 6186 (2014): 862–67; Frank Schilbach, Heather Scho-
field, and Sendhil Mullainathan, “The Psychological Lives of the Poor,”American Economic
Review 106, no. 5 (2016): 435–40. Banerjee and Duflo describe the economic lives of the poor
using household survey data from thirteen countries: Cote d’Ivoire, Guatemala, India, Indo-
nesia, Mexico, Nicaragua, Pakistan, Panama, Papua New Guinea, Peru, South Africa, Tanza-
nia, and Timor Lest.
16
In classical economics, this constitutes an irrational choice and behavior. In behavioral
economics, this is more rational.
17
World Bank, Mind, Society, and Behavior (Washington, DC: World Development Report
2015), https://www.worldbank.org/content/dam/Worldbank/Publications/WDR/WDR
%202015/WDR-2015-Full-Report.pdf.
18
On a related idea, Amartya Sen defines a person’s functioning as his various doings and
beings, whereas a person’s capability is his set of functioning vectors. See Amartya K. Sen,
Commodities and Capabilities (Amsterdam: North-Holland, 1985).
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exchange-entitlement failure.
19
Third, the person may not be able to exercise
his agency and use his resources to meet the requirement to be above the
poverty line, but this leads to further questions: Does the lack of agency or
Table 1. The Economic and Psychological Lives of the Poor
Economic Lives of the Poor Psychological Lives of the Poor
Living arrangements: Large family. Many
children, fewer older people. Extended
family.
Food and other consumption purchases: Food
accounts for 56 to 78 percent of the
expenditure. Spending on festivals,
weddings, and funerals are an impor-
tant part of the budget. Do not spend on
entertainments like theater, movies, and
spa treatments.
Ownership of assets: Apart from land, they
own few productive assets.
Health and well-being: Frequently sick or
weak.
Investment in education: Invest little in
education. Children go to substandard
schools. Unable to distinguish high
quality from substandard education.
Livelihoods: Not specialized in their chosen
field because of risk spreading. Seek out
new opportunities. Run extremely small
businesses and have unrealized econo-
mies of scale. They could earn more if
they migrated to and stayed longer in a
city. The lack of long-term migration
reflects the value of remaining close to
their social network, in a setting where it
might be the only source of informal
insurance available to them.
Markets and saving: Outstanding debts. Do
not save because they do not have bank
accounts or other rewarding financial
assets. Saving at home is challenging
either because of safety concerns or they
are vulnerable to the temptation of
spending. Little access to formal insur-
ance.
Infrastructure: Availability of physical
infrastructure like electricity, tap water,
and basic sanitation is poor and varies
across rural-urban areas and across
countries.
Biases: Decision-making is affected by
potential biases. In two-system model of
the brain, system 1 is intuitive,
automatic, and effortless, and as a
result, prone to biases and errors.
System 2 is slow, effortful, deliberate,
and costly, but typically produces more
unbiased and accurate results. Poor are
mentally taxed and more likely to
engage System 1.
Uses of mental bandwidth: Since they have less
money to buy things, they spend more of
their bandwidth managing their money.
Tax on bandwidth: Manage sporadic income,
juggle expenses, and make difficult trade-
offs, which are distracting. Thinking and
fretting about money taxes bandwidth.
Mental functioning: Insufficient food con-
sumption affects mental functioning.
Thoughts may become lethargic and diffi-
cult to sustain and temptation more diffi-
cult to resist. Hunger may be more than
unpleasantness, or a cause of physical
weakness; it might also diminish band-
width.
•Low bandwidth may reduce the
utility of food and increase the
utility of nonfood items (such as
entertainment, alcohol, and
tobacco) that make them happy
or give them satisfaction.
•Eating more and better would
help build up nutrients in their
system and enhance their pro-
ductivity. A possible reason for
low food utility is inconsistency
in the quality and quantity of
food.
Other impacts on bandwidth: Other correlates
of poverty that may affect bandwidth are
pain, sleep deprivation, depression, and
noise pollution.
19
On the entitlement approach to starvation and famines, a person starves either because he
(a) does not have the ability to command enough food or (b) does not use this ability to avoid
starvation. See Sen, Poverty and Famines. Here, the ability to command food refers to the legal
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inability to exercise agency make a nonpoor person poor? Are poverty and
agency inextricably linked?
Clearly, the lack of agency or inability to exercise agency does not make
a nonpoor person poor. However, such a lack can render him function-
ally poor. The ability to get what he wants, such as meeting nutritional
needs, depends on his ability to translate resources into consumption,
which is mediated by features of his context. Consider the predicament of
Britney Spears.
20
She is a wealthy woman, but a conservatorship
restricted her agency. Did it render her poor? The answer is straightfor-
wardly “No.”However, if the conservatorship, beyond restricting
agency, had caused her to exhibit the economic and psychological fea-
tures associated with poverty, I argue that she would have been rendered
functionally poor. In her case, the capacity to translate resources into
agency was blocked by a feature of her context, namely, the American
legal system.
The link between poverty and agency is nonlinear. They are inextricably
linked at the bottom. If all a person can think about is how to pay immediate
bills, he is less likely to make good decisions (see Table 1). Thus, at the lowest
levels, poverty and agency go together, where poverty impairs a person’s
decision-making. Consequently, escaping poverty is difficult for him.
Ernest’s inability to meet the needs of his family, his chronic illness and
physical pain, and thinking and fretting about money taxed his mental
bandwidth. In addition, the lack of well-defined property rights over his
share of land, compounded by regard for his family’s prestige and honor
and his perceived loss of dignity, both impaired and impeded his agency,
such as an inability to sell his land, which rendered him functionally
poor. Ernest was thus functionally poor even though he was not
economically poor.
Whether a person is poor in terms of the standard definition or function-
ally poor has important policy implications. If the former, then multifaceted
anti-poverty programs, involving both policy-level and agency-level inter-
ventions, are more likely to be effective.
21
If it is the latter, then policy-level
interventions, such as property rights and access to formal insurance, may
suffice.
means available in the society (e.g., the use of production possibilities, trade opportunities,
entitlements in relations to the state). The entitlement approach focuses on option (a) as the
reasons for starvation and famines. In contrast, the idea of functional poverty also emphasizes
the psychological reasons behind a person’s inability to use his resources and agency to avoid
many of the conditions of poverty.
20
“Britney Spears Conservatorship Dispute,”Wikipedia,https://en.wikipedia.org/
wiki/Britney_Spears_conservatorship_dispute.
21
Abhijit Banerjee et al., “A Multifaceted Program Causes Lasting Progress for the Very
Poor: Evidence from Six Countries,”Science 348, no. 6236 (2015); Oriana Bandiera et al., “Labor
Markets and Poverty in Village Economies,”Quarterly Journal of Economics 132, no. 2 (2017):
811–70; Abhijit Banerjee, Esther Duflo, and Garima Sharma, “Long-Term Effects of the Target-
ing the Ultra-Poor Program,”American Economic Review 3, no. 4 (2021): 471–86.
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C. Poverty is a relationship
Poverty is a relationship between the poor and their environment, that is,
the local community, markets, and institutions. To understand poverty, we
thus need to approach it as the outcome of a process that binds the poor with
their environment.
In economics, a strand of literature on “poverty traps”recognizes that
some of the drivers of poverty are external to the poor. Incomplete markets,
where the supply of credit is insufficient to meet demand, can lead to a
poverty trap.
22
Poverty can beget poverty, if the educational investment in
children is sufficiently sensitive to parental income.
23
Coordination prob-
lems, such as when agents fail to coordinate their actions to achieve an
optimal allocation of resources, can also lead to a poverty trap.
24
Persistent
corruption can lead to a poverty trap.
25
The kin system, an informal system
of shared rights and obligations among the extended family for the purpose
of mutual assistance, can exacerbate moral hazard problems.
26
The failure
to aspire to one’s own potential is also a potential explanation of poverty
traps, suggesting that inducing the poor to have higher aspirations may
break their vicious cycle of poverty.
27
However, it is possible that inducing
higher aspirations may backfire: if the poor set their aspirations too high,
they may fail to achieve them, which may actually reduce the investments
needed to improve their lives.
28
A recent study tests the theory of aspiration-based poverty traps.
29
The
authors collaborated with a microfinance institution in the Philippines that
offers savings accounts and group-based microfinance loans to female sub-
sistence entrepreneurs who raise livestock, run small retail businesses, rent
tricycles and boats, provide hair dressing, and resell scrap metal. The study
22
Abhijit Banerjee and Andrew F. Newman, “Risk-Bearing and the Theory of Income
Distribution,”Review of Economic Studies 58, no. 2 (1991): 211–35; Abhijit Banerjee and
Andrew F. Newman, “Occupational Choice and the Process of Development,”Journal of
Political Economy 101, no. 2 (1993): 274–98.
23
Gary Becker and Nigel Tomes, “An Equilibrium Theory of the Distribution of Income and
Intergenerational Mobility,”Journal of Political Economy 87, no. 6 (1979): 1153–89; Glenn Loury,
“Intergenerational Transfers and the Distribution of Earnings,”Econometrica 49, no. 4 (1981):
843–67.
24
Michael Kremer, “The O-Ring Theory of Economic Development,”Quarterly Journal of
Economics 108, no. 3 (1993): 551–75.
25
Pranab Bardhan, “Corruption and Development: A Review of the Issues,”Journal of
Economic Literature 35, no. 3 (1997): 1320–46.
26
Karla Hoff and Arijit Sen, “The Kin System as a Poverty Trap?”in Poverty Traps,
ed. Samuel Bowles, Steven Durlauf, and Karla Hoff (Princeton, NJ: Princeton University Press,
2006), 95–115.
27
See, e.g., Arjun Appadurai, “The Capacity to Aspire: Culture and the Terms of
Recognition,”in Culture and Public Action, ed. Vijayendra Rao and Michael Walton (Stanford,
CA: Stanford University Press, 2004), 59–84; Patricio Dalton, Sayantan Ghosal, and Anandi
Mani, “Poverty and Aspirations Failure,”The Economic Journal 126, no. 590 (2016): 165–88.
28
Garance Genicot and Debraj Ray, “Aspirations and Economic Behavior,”Annual Review of
Economics 12 (2020): 715–46.
29
David McKenzie, Aakash Mohpal, and Dean Yang, “Aspirations and Financial Decisions:
Experimental Evidence from the Philippines,”Journal of Development Economics 156 (2022).
18 TAUHIDUR RAHMAN
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covers 2,400 clients in 190 microfinance groups, which were randomly
assigned to business as usual (the control group), a financial aspiration
treatment, and/or a financial knowledge treatment. In the financial aspira-
tion treatment, the training encouraged participants to set ambitious life
goals and to choose savings targets in line with those goals. The researchers
cross-randomized with the aspiration treatment a financial knowledge treat-
ment, which provided a more standard financial education approach. The
findings in the aspiration treatment are striking: the participants increased
their saving goals but failed to achieve them. They borrowed less, so their
business investment decreased. This supports the theory that inducing the
poor to set their aspirations too high to break out of the poverty trap may
backfire.
However, in both traditional and aspiration-based explanations of per-
sistent poverty, the focus remains on the poor per se, their access to markets,
coordination failures, and low aspirations. Recent studies provide causal
evidence in support of the view that the neighborhoods in which people live
have powerful effects on their economic outcomes. In a series of seminal
studies, Raj Chetty and his coauthors show that the neighborhoods in which
children grow up shape their earnings, college attendance rates, and fertility
and marriage patterns; moving to a lower-poverty neighborhood improves
college attendance rates and earnings for children who were young (below
age thirteen) when their families moved.
30
Thus, to understand poverty, both the poor and the environment in which
they live are important considerations. To understand the nature and
dynamics of poverty, however, we need to understand the relationship
between the two. This idea is not new. Sociologists have contemplated
the social world in terms of dynamic, unfolding relations. Relational soci-
ologists have emphasized relationalism, that is, conceiving the social world
as consisting in processes, over substantivalism, that is, conceiving the
social world as consisting in substances, in explanations of social phenom-
ena.
31
Relational ethnographers have studied fields instead of places,
boundaries instead of bounded groups, processes instead of processed
people, and cultural conflict instead of group culture.
32
Poverty is a state of the economic and social world. Many people are in
poverty not because they lack effort, entrepreneurship, or diversification of
risks to reduce their vulnerability. Rather, they often are poor because they
are unable to specialize enough and lack access to formal insurance and
credit that rich people have; they have psychological impediments that
30
Raj Chetty and Nathaniel Hendren, “The Effects of Neighborhoods on Intergenerational
Mobility II: County Level Estimates,”Quarterly Journal of Economics 133, no. 3 (2018): 1163–228;
Raj Chetty, Nathaniel Hendren, and Lawrence Katz, “The Effects of Exposure to Better Neigh-
borhoods on Children: New Evidence from the Moving to Opportunity Experiment,”American
Economic Review 106, no. 4 (2016): 855–902.
31
Mustafa Emirbayer, “Manifesto for a Relational Sociology,”American Journal of Sociology
103, no. 2 (1997): 281–317.
32
Matthew Desmond, “Relational Ethnography,”Theory and Society 43, no. 5 (2014): 547–79.
19POVERTY, AGENCY, AND DEVELOPMENT
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come from being in the state of poverty, which in turn limit their ability to
exercise the agency they have.
33
While a person can slide back into poverty,
persistence in poverty is about his relationships with the community, mar-
kets, and institutions. Loss of self-respect and dignity can disarm the poor,
which has adverse consequences for their agency and its exercise.
Consider Figure 1 below for an illustration of the relationships that the
poor, the functionally poor, and the nonpoor, who live in that same envi-
ronment, may have with the environment. The solid dark line connecting
the nonpoor with their environment denotes a strong relationship. For
instance, the nonpoor have strong social capital in their local community,
which provides informal social insurance in times of need. Likewise, they
have a strong relationship with the local market, including access to formal
financial institutions, and strong relationships with local public institutions,
such as education, health care, and governing bodies.
In contrast, the dotted line connecting the poor with their environment is
a weak relationship. The poor have limited social capital in their commu-
nity. They usually lack access to credit and insurance from formal financial
institutions, frequently rely on informal sources of credits that come at high
interest rates (often paid back in kind with labor), and they are less con-
nected with local public institutions (see Table 1 above).
The solid light line connecting the functionally poor with their environ-
ment denotes a relationship that is stronger than the relationship that the
poor have with their environment, but it is weaker than the corresponding
relationship that the nonpoor have. The functionally poor may have good
social capital in their local community, linkages with formal financial insti-
tutions, and strong connections with the local public institutions. However,
they are unable to use them because of their regard for social norms, family
prestige and honor, and the psychological consequences of financial stress.
Moreover, not only the strength of these relationships matters. The terms
of the relationships are equally important, which are more favorable to the
nonpoor than to the functionally poor and the poor. For example, nonpoor
farmers get priority during the irrigation seasons from irrigation providers
(optimal timing of irrigation affects productivity), the farm laborers are
more willing to work on the nonpoor’s farms (crop loss is higher if harvest-
ing is delayed during the peak season), access to credit from formal financial
institutions is available on relatively more favorable terms (such as lower
interest rates or a longer payment schedule), and local public institutions are
more responsive to their concerns. Therefore, to break out of persistent
poverty, anti-poverty programs must help markets and local institutions
33
Johannes Haushofer and Ernst Fehr examine the evidence for the hypothesis that poverty
may have psychological consequences that can lead to economic behaviors that make it
difficult to escape poverty. See Haushofer and Ernst Fehr, “On the Psychology of Poverty.”
They conclude that poverty causes stress and negative affective states, which may lead to short-
sighted and risk-averse decision-making. These relationships may constitute a feedback loop
that perpetuates poverty.
20 TAUHIDUR RAHMAN
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work for the poor—for example, by increasing access to credit and insur-
ance—and provide them with meaningful assets to build upon, induce them
to higher aspirations, and build their agency.
III. A
David Schmidtz’s conceptualization of a person’s agency is about having
goals and their pursuit: “While objects are passive, agents are active. Things
happen to objects, but agents are beings that sometimes also do things.
Agency is a matter of having goals and making choices about how to pursue
them.”
34
Sen conceptualizes agency as a person’s ability to act on behalf of
what he or she values and has reason to value. In his account, agency is
exercised with respect to goals the person values and may or may not
advance his well-being.
35
The agency of an individual can include the following elements: the
ability to focus, process and understand the environment, retain and recall
knowledge when needed, plan and make choices accordingly, and enforce
the choices made.
36
Some aspects of agency are natural, while others can be
nurtured and acquired. Just like a person’s executive function, his agency
can be expanded through education, exposure, and learning-by-doing.
However, to exercise agency, it is not enough to have agency. The person
must also be willing or able to exercise his agency. Often, there is confusion
Figure 1. Poverty is a relationship between the poor and their
environment.
34
David Schmidtz, “The Meanings of Life,”in Life, Death, & Meaning: Key Philosophical
Readings on the Big Questions, ed. David Benatar, 3rd. ed. (Rowman & Littlefield, 2016), 101.
35
Sen, Commodities and Capabilities; Amartya K. Sen, “Well-Being, Agency, and Freedom:
The Dewey Lectures 1984,”The Journal of Philosophy 82, no. 4 (1985): 169–221; Amartya K. Sen,
Development as Freedom (New York: Knopf Press, 1999).
36
Agency is thus correlated with executive function.
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between what constitutes agency and the realization of agency. In classical
economics, every individual is “empowered,”so there is no problem of agency:
This is a person with a sense of control over his or her life, who
perceives choices, and acts on them. There is not a glimmer in this basic
model that any individual might ever feel dominated, oppressed, pas-
sive, stuck, ill, unsure about his or her abilities, or unaware of alterna-
tives. There is no recognition that many people in many situations will
not perceive that any choices are available to them.
37
This basic model, on Rebecca Blank’s commonsense view, is inapplicable to
some people with little education in remote communities in which they
might not be included in household decision-making (see Table 2 below),
are often restricted to a small social circle, and in which, for example, beating
a wife who violates gender norms is deemed legitimate. When a hierarchy is
perpetually present in people’s minds through restrictions on mobility,
rules of etiquette, gender norms, rules of dress, and symbols, the hierarchy
may come to seem part of the natural order of things. Intuition suggests that
opportunities individuals have will affect their preferences: their aspira-
tions, their self-construal, and their sense of control over their lives.
Empirical studies support this view. Studies surveyed by Ernst Fehr and
Karla Hoff find that historical institutions, even after they are abolished, can
shape individuals’preferences over social insurance and their willingness to
accept a labor contract, perhaps by shaping their sense of entitlement.
38
A
group’s position at the top or bottom of an extreme social hierarchy can shape
group members’willingness to punish norm violations that hurt a member of
one’scommunity.
39
Some analysts of historical changes in fertility argue that
expanded opportunities for contraception made certain choices “thinkable”not
only in the sense of their technical possibility, but also because discussions of
the expanded opportunities made fertility control socially legitimate. Based on
their analysis of changes in fertility, Robert Pollak and Susan Watkins conclude
that there was a dynamic “interweaving of opportunities and preferences.”
40
The idea that a person’s sense of control over his life (or agency) may mainly be
an aspect of social and cultural systems rather than of individual traits and
preferences is important because an increase in both agency and the exercise of
agency expand well-being and promotes economic development.
41
37
Rebecca M. Blank, “What Should Mainstream Economists Learn from Feminist Theory?”
in Beyond Economic Man: Feminist Theory and Economics, ed. Marianne A. Ferber and Julie A.
Nelson (Chicago, IL: University of Chicago Press, 1993), 151.
38
Ernst Fehr and Karla Hoff, “Introduction: Tastes, Castes, and Culture: The Influence of
Society on Preferences,”The Economic Journal 121, no. 556 (2011): F396–F412.
39
Karla Hoff, Mayuresh Kshetramade, and Ernst Fehr, “Caste and Punishment: The Legacy
of Caste Culture in Norm Enforcement,”The Economic Journal 121, no. 556 (2011): F449–F75.
40
Robert Pollak and Susan Cotts Watkins, “Cultural and Economic Approaches to Fertility:
Proper Marriage or Mesalliance,”Population and Development Review 19, no. 3 (1993): 467–96.
41
Vijayendra Rao and Michael Walton, “Culture and Public Action: Relationality, Equality
of Agency, and Development,”in Culture and Public Action, ed. Vijayendra Rao and Michael
Walton (Stanford, CA: Stanford University Press, 2004), 3–36.
22 TAUHIDUR RAHMAN
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IV. P C P A  I  E  A
Poverty is highly associated with various deprivations that determine a
person’s agency and the exercise of agency.
42
The United Nations Develop-
ment Program (UNDP) underscored this point in 1997:
It is in the deprivation of the lives that people can lead that poverty
manifests itself. Poverty can involve not only the lack of the necessities
of material well-being, but the denial of opportunities for living a
tolerable life. Life can be prematurely shortened. It can be made
Table 2. Married Women’s Say in the Household (Uttar Pradesh and Tamil Nadu,
India)
Women’s Status
Wife’s Self-
Evaluation
Husband’s
Evaluation
of Wife Difference
Muslim (N = 820)
Does wife have a say in (Yes = 1, No = 0)
Purchasing household goods 0.256 0.479 –0.223**
Working outside the house 0.583 0.691 –0.108**
Number of children to have 0.783 0.887 –0.104**
Punishing children for misbehaving 0.857 0.915 –0.057**
Care of sick children 0.763 0.906 –0.142**
Amount of schooling for children 0.616 0.826 –0.209**
What kind of school for children 0.583 0.817 –0.234**
Hindu (N = 839)
Does wife have a say in (Yes = 1, No = 0)
Purchasing household goods 0.306 0.521 –0.215**
Working outside the house 0.656 0.740 –0.085**
Number of children to have 0.881 0.911 –0.030**
Punishing children for misbehaving 0.855 0.888 –0.033**
Care of sick children 0.760 0.860 –0.100**
Amount of schooling for children 0.624 0.831 –0.207**
What kind of school for children 0.581 0.799 –0.217**
**
Indicates significance at 5%. Source: Author’s own calculation.
42
Using data from the Human Development Report 1999, Tauhidur Rahman analyzes
thirty-eight indicators of well-being, including nutrition, education, longevity, and access to
public health services, across developing and developed countries and finds that nearly every
well-being indicator is negatively associated the poor’s population share. See Tauhidur Rah-
man, “Essays on the Measurement of Human Well-Being”(PhD diss., Washington State
University, 2004).
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difficult, painful, or hazardous. It can be deprived of knowledge and
communication. And it can be robbed of dignity, confidence, and self-
respect—as well as the respect of others. All are aspects of poverty that
limit and blight the lives of many millions in the world today.
43
The next two subsections, drawing on recent studies, offer empirical sup-
port for this argument.
A. Poverty leads to poor agency through human capital
Poverty is a factor in individual health and education. The poor are less
healthy. Poverty also hampers learning through poor nutrition, health, and
home circumstances.
44
School dropout rate for children from poor families
is much higher.
45
Thus, the poor are less educated than the nonpoor. Pov-
erty also affects the allocation of resources among household members,
which has a strong gender dimension. Given that health and education
are vital to a person’s agency, poverty leads to his poor agency by affecting
health and education.
The poor face substantial uncertainty and income volatility.
46
Long-term
exposure to such stress threatens their mental health.
47
Recent experimental
studies find the efficacy of cash transfers in improving mental and emo-
tional health.
48
Ashutosh Kumar and Tauhidur Rahman study the impact of
a large, community-driven development program, JEEViKA—which pro-
motes women’s livelihoods and agency through a network of women’s self-
help groups (SHGs) in Bihar, India—on women’s mental and emotional
health.
49
Using a sample of 2,360 SHG women from matched pairs of sixty-
six high-exposure and low-exposure JEEViKA villages, they find that the
program improved older women’s mental and emotional health.
43
United Nations Development Program, Human Development Report (New York: UNDP,
1997), https://hdr.undp.org/content/human-development-report-1997.
44
UNESCO, “Strong Foundations: Early Childhood Care and Education”(Education for All
Global Monitoring Report 2007, Paris, 2006), https://www.unesco.org/gem-report/en/
strong-foundations/ecce.
45
Deon Filmer and Lant Pritchett, “The Effect of Household Wealth on Educational Attain-
ment: Evidence from 35 Countries,”Population and Development Review 25, no. 1 (1999): 85–120.
46
Daryl Collins et al., Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Princeton,
NJ: Princeton University Press, 2009).
47
Sabine Staufenbiel et al., “Hair Cortisol, Stress Exposure, and Mental Health in Humans: A
Systematic Review,”Psychoneuroendocrinology 38, no. 8 (2013): 1220–35.
48
Johannes Haushofer and Jeremy Shapiro, “The Short-Term Impact of Unconditional Cash
Transfers to the Poor: Experimental Evidence from Kenya,”Quarterly Journal of Economics 131,
no. 4 (2016): 1973–2042; Johannes Haushofer and Jeremy Shapiro, “The Long-Term Impact of
Unconditional Cash Transfers to the Poor: Experimental Evidence from Kenya”(unpublished
manuscript, 2018), https://haushofer.ne.su.se/publications/Haushofer_Shapiro_UCT2_
2018.pdf.
49
Ashutosh Kumar and Tauhidur Rahman, “Can a Women’s Rural Livelihood Program
Improve Mental Health? Experimental Evidence from India”(Annual Meeting, August 5–7,
Washington, DC, Agricultural and Applied Economics Association, 2018).
24 TAUHIDUR RAHMAN
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B. Poverty impedes the exercise of agency
Poverty impedes the exercise of agency through its adverse effects on an
individual’s aspirations, self-esteem, dignity, and mental bandwidth,
among other potential mechanisms.
1. Aspiration failure
While I have highlighted aspiration failure as a potential explanation of
poverty traps, Patricio Dalton and coauthors develop a theoretical model to
show how poverty can lead to aspiration failure.
50
In the model, both the
rich and the poor share the same preferences and behavioral bias in setting
aspirations. However, poverty imposes additional external constraints on
the poor that exacerbate the adverse effects of the behavioral bias in setting
their aspirations: they are more likely to choose a low level of aspiration and
effort relative to the best outcome they could have achieved, where low
aspirations lead to low effort, reinforcing low aspirations. In other words,
poverty curtails the poor’s capacity to aspire.
51
However, there clearly are
other possible causes of aspiration failure, such as cultural norms, kin
system, and financial stress. While Ernest and Hope’s household had high
aspirations for their sons, they had aspiration failure for their daughters,
caused by their increasing financial stress, social and cultural norms, and the
regard for their own prestige and honor.
2. Self-esteem
Self-esteem is an individual’s evaluation of his worth as a person. It
develops at an early age but changes with changing life conditions. Self-
esteem rises with perception of success and falls with perception of failure.
52
Self-esteem affects a person’s preferences and low self-esteem harms indi-
vidual health and well-being.
53
In psychology, there is no consensus on the
direction of relationship between low self-esteem and depression. Some
studies show low self-esteem contributing to depression, while others show
depression eroding self-esteem. In a meta-analysis of the available longitu-
dinal data (covering seventy-seven studies on depression and eighteen
studies on anxiety), the effect of self-esteem on depression is significantly
50
Dalton, Ghosal, and Mani, “Poverty and Aspirations Failure.”
51
Appadurai, “The Capacity to Aspire,”in Culture and Public Action, ed. Rao and Walton.
52
Karin Bongers, Ap Dijksterhuis, and Russell Spears, “Self-Esteem Regulation after Success
and Failure to Attain Unconsciously Activated Goals,”Journal of Experimental Social Psychology
45, no. 3 (2009): 468–77; Jennifer Crocker, Samuel R. Sommers, and Riia K. Luhtanen, “Hopes
Dashed and Dreams Fulfilled: Contingencies of Self-Worth and Graduate School Admissions,”
Personality and Social Psychology Bulletin 28, no. 9 (2002): 1275–86; Todd F. Heatherton and Janet
Polivy, “Development and Validation of a Scale for Measuring State Self-Esteem,”Journal of
Personality and Social Psychology 60, no. 6 (1991): 895–910.
53
Rob McGee and Sheila Williams, “Does Low Self-Esteem Predict Health Compromising
Behaviors among Adolescents?”Journal of Adolescence 23, no. 5 (2000): 569–582.
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stronger than the effect of depression on self-esteem.
54
In addition, self-
esteem predicts anxiety and anxiety predicts self-esteem.
Game theorists have discussed the relationship between self-esteem and
self-handicapping.
55
Self-handicapping, a term coined by Edward Jones
and Steven Berglas, refers to someone self-inflicting performance impedi-
ments.
56
These, in turn, reduce the quality of the performance but distort the
signal a self-handicapper receives from a poor performance. While self-
handicapping behavior may temporarily protect a person’s self-esteem, it
may negatively impact long-run outcomes.
57
Low self-esteem is associated with poverty.
58
In a meta-analysis of
446 studies, low socioeconomic status is associated with low self-esteem.
59
Thus, poverty can impede the exercise of agency through affecting a per-
son’s self-esteem. This is also reflected in the life of Ernest. On his own
account, as his challenges were turning into constraints, Ernest started
avoiding others in his community, which clearly limited the exercise of
the agency that he had.
3. Mental Bandwidth
Studies on the psychological consequences of poverty find that poverty
impedes the cognitive function of the poor, making them more vulnerable to
biases and judgment errors in decision-making.
60
Since the poor have less
money to buy things, they spend more of their mental bandwidth managing
money. In other words, the poor are preoccupied with managing sporadic
income, juggling expenses, and making difficult trade-offs. Thus, thinking
and fretting about money taxes the poor’s mental bandwidth, which in turn
impedes their agency.
54
Julia Sowislo and Ulrich Orth, “Does Low Self-Esteem Predict Depression and Anxiety? A
Meta-Analysis of Longitudinal Studies,”Psychological Bulletin 139, no. 1 (2013): 213–40.
55
Mark R. Leary and Roy F. Baumeister, “The Nature and Function of Self-Esteem: Socio-
meter Theory,”Advances in Experimental Social Psychology 32 (2000): 1–62; Dianne M. Tice,
“Esteem Protection or Enhancement? Self-Handicapping Motives and Attributions Differ by
Trait Self-Esteem,”Journal of Personality and Social Psychology 60, no. 5 (1991): 711–25;
Edward E. Jones and Steven Berglas, “Control of Attributions about the Self through Self-
Handicapping Strategies: The Appeal of Alcohol and the Role of Underachievement,”
Personality and Social Psychology Bulletin 4, no. 2 (1978): 200–206.
56
Jones and Berglas, “Control of Attributions about the Self through Self-Handicapping
Strategies.”
57
Rachel Mannahan, “Self-Esteem and Rational Self-Handicapping”(unpublished manu-
script, 2023).
58
See, e.g., Michal M. Mann et al., “Self-Esteem in a Broad-Spectrum Approach for Mental
Health Promotion,”Health Education Research 19, no. 4 (2004): 357–72; Farzad Poorgholami
et al., “Effectiveness of Self-Care Education on the Enhancement of the Self-Esteem of Patients
Undergoing Hemodialysis,”Global Journal of Health Science 8, no. 2 (2015): 132–36.
59
Jean Twenge and W. Keith Campbell, “Self-Esteem and Socioeconomic Status: A Meta-
Analytic Review,”Personality and Social Psychology Review 6, no. 1 (2002): 59–71.
60
Mullainathan and Shafir, Scarcity; Mani et al., “Poverty Impedes Cognitive Function”;
Haushofer and Ernst Fehr, “On the Psychology of Poverty”; Schilbach, Schofield, and Mullai-
nathan, “The Psychological Lives of the Poor.”
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C. Stereotype, epistemic discrimination, and agency
Stereotypes and discrimination are among other documented factors of
agency, especially for women. Women’s agency can take different expres-
sions, including access to and control over resources, autonomy, decision-
making over family formation, having a voice in society, and influencing
policy.
To exercise agency, a woman must be heard. To be heard, she needs to
have a voice. She may not be heard because of silencing, which occurs when
she is prevented from expressing her views. Silencing is passive when she
chooses not to communicate and it is active when she chooses not to act on
the information or knowledge provided. Compared to men with the same
expertise, women with expertise in a male-stereotyped domain (such as
sports, history, and geography) are less likely to communicate it and are
thus silenced passively.
61
This may be an explanation of persistent, gender-
based occupational stereotypes that have been well documented across
societies.
However, constraints on a woman’s ability to exercise her agency may
also arise from the prejudiced way that people assess her credibility as a
source of knowledge. Such a prejudice would hamper her in every direction.
Being discredited in her capacity as a giver of knowledge may undermine
her sense of self and, hence, her ability to question conventions and perse-
vere in the face of opposition. Hoff, Rahman, and Vijayendra Rao investi-
gate discrimination against women as a source of information in daily life in
Bihar, India.
62
They develop three behavioral experiments and use them to
study such discrimination against women. In their first experiment of pro-
viding nutritional information (a choice between two types of flour), they
test whether providing information to the wife is as influential as the hus-
band in the decision of the couple. Couples are randomly assigned one of the
three treatments. In one treatment, nutritional information is given to the
man. In another treatment, the same information is given to the woman. In
the third treatment, no one in the household receives the information. They
find that providing information influences the couple’s choice over two
types of flour, but it matters more if the information is provided to the
husband instead of the wife. This finding is important because many anti-
poverty programs specifically target women. An implicit assumption in
such programs is that providing information to women is efficient. Their
finding shows that providing information to women may not be efficient
because men may not listen to them. In their second experiment, they
investigate the same question as in the first experiment, but in a different
context, where information provided is about optical illusions. Unlike the
61
Katherine Coffman, “Evidence on Self-Stereotyping and the Contribution of Ideas,”The
Quarterly Journal of Economics 129, no. 4 (2014): 1625–60.
62
Karla Hoff, Tauhidur Rahman, and Vijayendra Rao, “Epistemic Discrimination against
Women: Experimental Evidence from India”(unpublished manuscript, 2017).
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first experiment, in this case, both (man and woman) have the opportunity
to demonstrate their knowledge to the other and there is a strong economic
incentive for them to transfer information. They find that men give less
credibility to their wife’s word relative to the level that women give to their
husband’s word. That is, women have less voice than men and they are less-
effective informants.
Their third experiment tests whether information provided by women to
the respondents is less persuasive than the same information provided by
men. They present respondents with a video of a dispute involving two
houses (a red house and a blue house). The disputants are always one man
and one woman. They use twelve pairs of professional actors as the dispu-
tants. In each pair, one of the disputants is male and the other is female. With
each pair they have a video. All videos have the same scripts, pictures, and
announcer. In half of the videos, the disputant representing the red house is
a male and the disputant representing the blue house is a female. In the other
half of the videos, it is the reverse. Respondents are randomly assigned to
one of the twelve videos. Each disputant makes three arguments. Once both
disputants are done with presenting their arguments, the respondents are
asked to evaluate the presented arguments and reveal their preference
concerning the solutions presented by the two disputants. More specifically,
the respondents are first asked to assess the wisdom, articulateness, and
credibility of the disputants. Then they are asked to reveal whose arguments
they support. The findings are striking. First, the respondents, on average,
find the woman in the dispute to be statistically more credible, articulate,
and wise than the man. Second, being perceived wiser, more articulate, and
more credible enhances the likelihood of winning the respondents’support.
Nevertheless, the female disputant does not win community (both male and
female respondents) support. In other words, a woman can win community
support in a debate against a man, but to have an equal chance of winning,
she needs to be perceived as wiser, more articulate, and more credible than
the man.
V. P A P D
Now I turn to my argument that agency is central to understanding both
poverty and development. The relationship between individual (collective)
agency and individual (collective) development is bidirectional: promoting
agency promotes development and vice versa. The idea that development
(such as improvements in income, education, and health) can improve
agency is straightforward. Consider the problem of classical consumer
utility maximization subject to the budget constraint that is taught in intro-
ductory economics. An increase in income, given fixed prices of goods and
services, relaxes the budget constraint and shifts the budget line to the right,
expanding the consumer’s choice set consisting of different combinations of
goods and services that he can buy and consume to maximize his utility.
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Income is a means to an individual’s ends. It can expand a consumer’s
opportunity and choice sets. Therefore, ceteris paribus, it is not difficult to
see why an increase in income can lead to improvement in some dimensions
of agency. Likewise, better educational and health attainments, ceteris par-
ibus, can improve at least some aspects of agency. However, whether
agency is a key to escaping poverty and for development has received
renewed attention in recent years.
Therefore, I here focus on the first part of the relationship between agency
and development, namely, the role of agency in development. I draw
upon empirical studies on agency as a determinant of development and
anti-poverty and economic empowerment programs that have targeted
individual (collective) agency for individual (collective) development. More
specifically, in Section V.A, I briefly discuss evidence showing that building
agency through a microlevel, bottom-up approach leads to better develop-
ment outcomes. In Section V.B, I draw upon empirical literature in econom-
ics and political science to support my argument that promoting collective
agency through macrolevel, policy-level programs leads to development.
A. Individual agency and development
Evidence on the role of agency in promoting development is available
from both observational and experimental studies. Jean Dreze and coau-
thors examine the determinants of widely used indicators of development
—such as fertility, child mortality, and gender bias in child mortality—in
India.
63
Using district-level data from the 1981 Census, they highlight three
findings. First, women’s agency, captured by female literacy and female
labor force participation, has powerful effects on mortality and fertility.
Second, higher levels of female literacy and labor force participation are
associated with significantly lower levels of female disadvantage in child
survival. Third, variables relating to the general level of development and
modernization have relatively weak effects on demographic outcomes.
Women’s autonomy results in long-term reduction in fertility and higher
survival rates of children.
64
Women tend to allocate more resources toward
the well-being of their children as compared to men. Therefore, women’s
income relative to husbands’income has a strong bearing on the well-being
of children.
65
Unearned income under the control of the mother has a
63
Jean Dreze, Anne-Catherne Guio, and Mamta Murthi, “Demographic Outcomes, Eco-
nomic Development and Women’s Agency,”Economic and Political Weekly 31, no. 27 (1996):
1739–42.
64
John Caldwell and Pat Caldwell, “The Cultural Context of High Fertility in Sub-Saharan
Africa,”Population and Development Review 13, no. 3 (1987): 409–37; Tim Dyson and Mick
Moore, “On Kinship Structure, Female Autonomy, and Demographic Behavior in India,”
Population and Development Review 9, no. 1 (1983): 35–60; Mukesh Eswaran, “The Empower-
ment of Women, Fertility, and Child Mortality: Towards a Theoretical Analysis,”Journal of
Population Economics 15, no. 3 (2002): 433–54.
65
John Strauss, Germano Mwabu, and Kathleen Beegle, “Intrahousehold Allocations: A
Review of Theories and Empirical Evidence,”Journal of African Economics 9 (2000): 83–143.
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greater impact on the health of the family as compared to when it is under
the control of the father.
66
Among experimental studies, that of Erica Field and coauthors is particu-
larly notable.
67
They investigate whether increasing control over earningscan
incentivize women to work and thereby influence norms around gender
roles. They conduct a randomized controlled trial covering 197 village clus-
ters (gram panchayats [GPs]), in the Indian state of Madhya Pradesh, in
partnership with the government workfare program, the Mahatma Gandhi
National Rural Employment Guarantee Scheme (MGNREGS). For a female
worker, the status quo is for her earnings to be deposited in the bank account
of a male household head. To increase women’s control over their earnings,
the researchers worked with banksto open individual accounts for women in
all treatment GPs and, in one-half of the treatment GPs, they coordinated with
state authorities to designate these accounts to receive direct deposit of
MGNREGS wages. In addition, the researchers cross-randomized a short
training on how to use the local bank kiosks that serviced these accounts.
This generated five intervention groups: (i) pure control(status quo); (ii) own
account (“accounts only”); (iii) own account and training; (iv) own account
and direct deposit; and (v) own account, direct deposit, and training. The
findings are striking. In comparison to the accounts-only group, women who
received direct deposit and training worked more in public- and private-
sector jobs. More importantly, after three years, direct deposit and training
liberalized women’s own work-related norms and changed perceptions of
community norms. A related strand of studies shows that placing female
leaders in positions of power changes public attitudes about gender roles and
raises both the aspirations parents have for their daughters and the aspira-
tions teenage girls have for themselves.
68
More recent anti-poverty and economic empowerment interventions
have been multifaceted, consisting of the components of asset transfer
and promotion of agency, but do they work? The answer is a resounding
“Yes.”The development impacts of such programs are larger and more
durable with a component of agency promotion than without it.
Abhijit Banerjee and coauthors and Oriana Bandiera and coauthors pro-
vide experimental evidence from seven countries for a “graduation”pro-
gram consisting of three components: (a) a transfer of productive assets,
(b) two years of training and coaching, and (c) access to a savings account.
69
The program increased net worth, income, and consumption. Christopher
66
Duncan Thomas, “Intra-Household Resource Allocation: An Inferential Approach,”Jour-
nal of Human Resources 25, no. 4 (1990): 635–64.
67
Erica Field et al., “On Her Own Account: How Strengthening Women’s Financial Control
Impacts LaborSupply and Gender Norms,”American Economic Review 111, no. 7 (2021): 2342–75.
68
Lori Beaman et al., “Powerful Women: Does Exposure Reduce Bias,”Quarterly Journal of
Economics 124, no. 4 (2009): 1497–540; Lori Beaman et al., “Female Leadership Raises Aspira-
tions and Educational Attainment for Girls,”Science 335, no. 6068 (2012): 582–86.
69
Banerjee et al., “A Multifaceted Program Causes Lasting Progress for the Very Poor”;
Bandiera et al., “Labor Markets and Poverty in Village Economies.”
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Blattman and coauthors find that the ultra-poor, war-affected women in
northern Uganda have high returns to a package of (a) $150 cash, (b) five
days of business-skills training, and (c) ongoing supervision.
70
Sixteen
months after the program, the microenterprise ownership and income of
the program participants doubled. In addition, the study finds that while
the ultra-poor have little social capital, their group bonds, informal insur-
ance, and cooperative activities can be induced for positive outcomes.
Guadalupe Bedoya and coauthors investigate whether the Targeting the
Ultra-Poor program (TUP) can lift ultra-poor households out of poverty in
the fragile context of Afghanistan.
71
In eighty villages in Balkh province of
Afghanistan, 1,219 ultra-poor households were randomly assigned to a
treatment or control group. Women in treatment households received a
one-off “big push”package, which included a transfer of livestock assets,
cash consumption stipend, skills training, and coaching. One year after the
conclusion of the program, there were large impacts on consumption,
assets, psychological well-being, financial inclusion, and women’s empow-
erment. More specifically, in the treatment group, per capita consumption
increased by 30 percent as compared to the control group and the share of
households below the national poverty line decreased to 62 percent in the
treatment group as compared to 82 percent in the control group. Under
modest assumptions about consumption impacts, the program’s estimated
internal rate of return is 26 percent, excluding improvements in psycholog-
ical well-being, women’s empowerment, and children’s health and educa-
tion. Given these results, the authors conclude that multifaceted
interventions can reduce poverty in fragile regions. In other words, it is
possible to lift even ultra-poor households out of poverty through multi-
faceted programming.
Clare Balboni and coauthors study a large-scale randomized asset trans-
fer program (provision of cows) in rural Bangladesh.
72
Using eleven years of
panel data on 6,000 households that began as ultra-poor, they find that large
enough transfers to the ultra-poor, which create better jobs for them, are an
effective means of getting them out of poverty traps.
Is a multifaceted program necessary, though, to fight extreme poverty?
The preceding studies suggest that it is necessary. Single-faceted programs
work if the binding constraint on the ultra-poor is their lack of wealth and
access to finances. However, evidence on the psychology of poverty sug-
gests that poverty impedes the cognitive function of the poor and taxes
70
Christopher Blattman et al., “The Returns to Microenterprise Support among the Ultra-
poor: A Field Experiment in Postwar Uganda,”American Economic Journal 8, no. 2 (2016): 35–64.
71
Guadalupe Bedoya et al., “No Household Left Behind: Afghanistan Targeting the Ultra
Poor Impact Evaluation”(Policy Research Working Paper 8877, World Bank, Washington
DC, 2019).
72
Clare Balboni et al., “Why Do People Stay Poor?”(NBER Working Paper 29340, Cam-
bridge, MA, National Bureau of Economic Research, 2021), https://www.nber.org/system/
files/working_papers/w29340/w29340.pdf.
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mental bandwidth.
73
Therefore, the poor are more subject to biases and
judgment errors. In such contexts, single-faceted programs may not pro-
duce desired development outcomes, which is also supported by the suc-
cess of TUP programs that building the agency of the ultra-poor is required
to lift them out of poverty.
B. Collective agency and development
The role of collective agency in development can be understood from at
least two points of view. First, one can examine the development impacts of
interventions that have attempted to improve group agency, such as with
women’s groups and community-driven development programs. Second,
one can look at the development impacts of building state capacity, which is
a correlate of state agency.
Women’s groups have become a popular approach to promoting
women’s empowerment. These groups are utilized to deliver develop-
ment interventions. Typically, these interventions attempt to change
women’shabits—such as how to organize together, save, be accountable,
and plan—promote social interaction and group deliberation, provide
access to credit and social protection, and target reduction in environ-
mental stress for women. In other words, efforts to create and support
women’s groups are also aimed at improving women’s individual
agency within their households and their group agency within their local
communities.
74
A significant body of empirical literature has thus
emerged on women’s groups. A recent review of experimental and
quasi-experimental studies suggests that group models can achieve pos-
itive development impacts by harnessing group interactions and delib-
erations, which would be difficult to achieve through individual-based
interventions.
75
To promote development, group monitoring and oversight of public- and
private-sector performance by local communities, public information dis-
semination, public complaint and grievance redress mechanisms, and citi-
zen participation in resource allocation decision-making (such as
participatory budgeting) have also been adopted.
76
Through these “civic
engagements”citizens can exercise their collective agency with the
73
Mullainathan and Shafir, Scarcity; Mani et al., “Poverty Impedes Cognitive Function”;
Haushofer and Fehr, “On the Psychology of Poverty”; Schilbach, Schofield, and Mullainathan,
“The Psychological Lives of the Poor.”
74
Kumar and Rahman, “Can a Women’s Rural Livelihood Program Improve Mental
Health?”
75
Lucía Díaz-Martin et al., “Greater than the Sum of the Parts? Evidence on Mechanisms
Operating in Women’s Groups,”The World Bank Research Observer 38, no. 1 (2023): 1–35.
76
Jonathan A. Fox, “Social Accountability: What Does the Evidence Really Say?”World
Development 72 (2015): 346–61; Martina Björkman and Jakob Svensson, “Power to the People:
Evidence from a Randomized Field Experiment on Community-Based Monitoring in
Uganda,”The Quarterly Journal of Economics 124, no. 2 (2009): 735–69.
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assistance of independent media and civil society organizations.
77
Coun-
tries with weak civic engagement have conducive environments for corrup-
tion and governments are susceptible to being influenced by powerful
groups. Consequently, the incentives of governments and citizens are not
aligned.
Thus, social accountability of governments, which is greater when the
collective agency of citizens is exercised, is vital for development. The
collective agency of citizens can be fostered through their direct political
participation, increasing access to information, and by supporting civil
society organizations. Providing information to citizens also improves their
collective agency.
78
A well-informed electorate in a democracy can signif-
icantly explain the variance in governmental performance and corruption.
79
The incentive for government to be responsive to their citizens is stronger if
a state has a more informed and politically active electorate.
80
The poor in such contexts are also typically less informed and less likely to
vote.
81
By empowering them, though, it is possible to mitigate these
effects.
82
For example, state governments in India are more responsive to
falls in food production and crop flood damage where newspaper circula-
tion is higher and electoral accountability is greater.
83
Civil society organi-
zations can play a powerful role in citizen empowerment by assisting the
media in providing unbiased information and through providing citizens
with government-monitoring tools.
84
For example, Action Aid campaigned
against political violence in a dozen villages in Nigeria, held town meetings,
and distributed information, reducing the ability of politicians to intimidate
77
Anna Lührmann, Kyle Marquardt, and Valeriya Mechkova, “Constraining Governments:
New Indices of Vertical, Horizontal, and Diagonal Accountability,”American Political Science
Review 114, no. 3 (2020): 811–20.
78
Rohini Pande, “Can Informed Voters Enforce Better Governance? Experiments in Low
Income Democracies,”Annual Review of Economics 3 (2011): 215–37.
79
Alicia Adsera et al., “Are You Being Served? Political Accountability and Quality of
Government,”Journal of Law, Economics, and Organization 19, no. 2 (2003): 445–90.
80
Timothy Besley and Robin Burgess, “The Political Economy of Government Responsive-
ness: Theory and Evidence from India,”The Quarterly Journal of Economics 117, no. 4 (2002):
1415–51.
81
Sidney Verba, et al., “Race, Ethnicity and Political Resources: Participation in the United
States,”British Journal of Political Science 23, no. 4 (1993): 453–97; Raymond E. Wolfinger and
Steven J. Rosenstone, Who Votes? (New Haven, CT: Yale University Press, 1980).
82
Katherine Casey, “Crossing Party Lines: The Effects of Information on Redistributive
Politics,”American Economic Review 105, no. 8 (2015): 2410–48; Thomas Fujiwara and Leonard
Wantchekon, “Can Informed Public Deliberation Overcome Clientelism? Experimental Evi-
dence from Benin,”American Economic Journal 5, no. 4 (2013): 241–55; Abhijit Banerjee et al., “Do
Informed Voters Make Better Choices? Experimental Evidence from Urban India”(unpub-
lished manuscript, 2011); Philip Keefer and Stuti Khemani, “Democracy, Public Expenditures,
and the Poor: Understanding Political Incentives for Providing Public Services,”World Bank
Research Observer 20, no. 1 (2005): 1–27.
83
Besley and Burgess, “The Political Economy of Government Responsiveness.”
84
Paul Collier and Pedro C. Vicente, “Votes and Violence: Evidence from a Field Experiment
in Nigeria,”The Economic Journal 124, no. 574 (2014): F327–F55; Macartan Humphreys and
Jeremy Weinstein, “Policing Politicians: Citizen Empowerment and Political Accountability in
Uganda Preliminary Analysis”(IGC Working Paper, International Growth Centre, 2012).
33POVERTY, AGENCY, AND DEVELOPMENT
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voters. As a result, voter turnout increased and the incidence of electoral
violence declined.
85
Empirical evidence on tangible impacts of these initiatives, however, has
been mixed. To make sense of the available evidence, Jonathan Fox con-
ducted a meta-analysis of prominent studies investigating the impacts of
“civic engagements”and social accountability measures and documents
their positive development outcomes, ranging from education, teacher
effort, and infant mortality rates to health and corruption.
86
More specifi-
cally, the study concludes that enabling environments for collective action
combined with strengthened state capacity to respond to citizen voice are
promising for development.
To examine the impact of accountability at the country level, Aleksandra
Petkovic and Rahman investigate the effects of government accountability
on development.
87
Using a panel of sixty-four young democracies from
1974 to 2010, they show that countries with stronger institutions of account-
ability have lower infant mortality rates, a widely used indicator of devel-
opment. Moreover, they show that while vertical, horizontal, and social
accountability are associated with lower infant mortality rates, the latter is a
relatively more powerful and robust determinant. These findings suggest
that policies that promote social accountability may lead to improvements
in development outcomes.
VI. C
This essay is inspired by the story of Ernest and Hope. The lessons I draw
from their story are about the nature and dynamics of poverty, agency, and
development. While Ernest and Hope lived in India, the characteristics of
their lives and the environment in which they lived resonate with more than
one billion people who live on under $2 dollar a day.
I have argued that to have a better understanding of such lives, the
following elements are required. First, we need to recognize that a person
who is not poor by the standard conception and characterization of poverty
can be or be rendered functionally poor. Second, poverty is a relationship
between the poor with their environment (community, local markets, and
local institutions). Third, poverty has primary roles in understanding
agency and the exercise of agency. Fourth, increasing agency promotes
development.
Timing and frequency are dimensions of poverty that widely used pov-
erty measures do not reflect. A household may be estimated to be nonpoor
over the time period measured in the census or survey, but it may actually
be poor for several months during that time period. That is, a household
85
Collier and Vicente, “Votes and Violence.”
86
Fox, “Social Accountability.”
87
Aleksandra Petkovic and Tauhidur Rahman, “Government Accountability and Develop-
ment: Evidence from Young Democracies”(unpublished manuscript, 2021).
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could be poor for the better part of the year but identified as nonpoor
because their poverty status is assessed on whether their annual income
exceeds the poverty line. The probability that a household might episodi-
cally fall into poverty is another important dimension of well-being.
However, currently used measures of poverty (both income- or
consumption-based and multidimensional) do not factor in how many
times a household falls below the poverty line.
A distinction needs to be made between a person who is poor in terms of
the standard definition based on income or consumption and a person who
is functionally poor. A person is functionally poor if he exhibits character-
istics that define the economic and psychological lives of the poor. The latter
is possible because a person can suffer from the psychology associated with
poverty and experience exchange-entitlement failure.
In both traditional and aspiration-based explanations of persistent pov-
erty, the focus continues to be on the poor per se, which I have argued is
misplaced. Drawing on insights from relational sociologists and ethnogra-
phers, I considered poverty as a relationship between the poor and their
environment. While a person can slide into poverty, persistence in poverty
is about his relationships with the community, markets, and institutions.
Moreover, both the strength and the terms of these relationships need to be
explored to have a better understanding of persistent poverty.
Poverty is associated with various deprivations that determine a person’s
agency and exercise of agency. Poverty causes poor agency through affect-
ing human capital formation and poverty impedes the exercise of agency
through channels such as aspiration failure, decreasing self-esteem, and
taxing mental bandwidth. Whether a person is really poor or functionally
poor has important policy implications. If the former, then multifaceted
anti-poverty programs, involving both policy-level and agency-level inter-
ventions, are more likely to be effective. If the latter, then policy-level
interventions, such as property rights or access to formal insurance, alone
may suffice.
To help the poor escape from persistent poverty, anti-poverty programs
must help markets and local institutions work for them as the agents that
they are and that they can be, provide meaningful assets for them to build
upon, induce higher aspirations, and build their agency. In other words, a
person cannot be nudged out of a poverty trap.
Agricultural and Resource Economics, University of Arizona
35
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