Abhijit Banerjee and Esther Duflo, both of MIT’s Poverty Action Lab, published a working paper back in October 2006 called The Economic Lives of the Poor. I am not usually one to urge an economics paper on anyone, but I will break from tradition here. Print this paper, take it home this weekend, and read it. I promise you that it will be 45 minutes well spent.

The Economic Lives of the Poor is based on 13 countries’ household surveys, and is one of the first publications to document spending patterns among very poor people. (We at WRI are currently working on a similar, more extensive analysis of such spending patterns, using similar survey data from 100-plus countries). While Banerjee and Duflo are not writing for a business audience – their paper will be published in an academic economics journal – it should be required reading for those of interested in the connection between business and development.

I like this paper so much because it shows that the ultra-poor – earning $1 or $2 per day – do in fact make choices about how to allocate their spending. Despite the ability to choose, the poor often remain so because they are badly served by the private and public sectors – victims of monopoly and monopsony. Of course, it is never simple, and Banerjee/Duflo don’t pretend that it is.

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