Ethiopian Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI). Seminar Series, March 20, 2012

1. Formation of Aspirations –
An Empirical Analysis
Tanguy Bernard1, Stefan Dercon2, Fanaye Tadesse1,
Alemayehu Seyoum Taffesse1 and Ibrahim Worku1
1
International Food Policy Research Institute
2
University of Oxford
March 20, 2012
CSAE Conference 2012 ‘Economic Development in Africa’
Oxford, UK
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2. Motivation – why aspirations
• Development discourse and praxis focus on ‘opportunities’
• Why do the poor not ‘invest’?
– Ethiopians and fatalism?
• A variety of mostly complementary explanations have been forwarded
over the years.
– Low returns to investments – Example: no schools, lack of credit
(market failures);
– Unexploited opportunities due to lack of information/knowledge
about the opportunities/returns – Example: insufficient observable
cases;
– Social constraints dampen the economic attractiveness of
investment opportunities – Example: egalitarian norms, very high
taxation, excessive regulations’
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3. Motivation – why aspirations
• Focus - ‘external circumstances’ and ‘opportunities’,
• Shift in focus - constraints associated with the manifested
attributes of decision makers
– Identity issues: People’s choices are conditioned by their
sense of self – Example: stereotype roles;
– Psychological issues: impatience, commitment, and
psychological barriers and similar reasons identified by the
behavioural economics literature – Example: loss aversion
and the consequent preference for the status quo;
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4. Motivation – why aspirations
• the aspirations failure approach:
– attempts to blend external constraints that the poor face
with the potential effect these constraints may have on the
internal logic governing choice by them;
– affords an alternative characterisation of what appears to be
fatalism (Ethiopia)
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5. Elements of the Aspirations Perspective
What are aspirations?
Aspirations have two distinctive features:
• Future-oriented - are goals that can only be satisfied at some
future time (differ from immediate gratifications);
• Motivators - are goals individuals are willing, in principle, to
invest time, effort or money in to attain (different from idle
daydreams and wishes)
 Note: the ‘willingness to invest’ is ‘potential’, or ‘conditional’
Ref: Simon (1977), Selten (1999), Appadurai (2002), Ray
(2003)
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6. Elements of the Aspirations Perspective
Why are aspirations important/useful?
Aspirations (or the capacity to aspire):
• Reflect bounded rationality;
• Are socially determined (social interaction);
• Are distributed unevenly within communities.
– Condition individual behaviour and well-being
– Useful device in analysing and/or addressing poverty
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7. Framework
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8. Wealth Aspiration - Data
Round 7 Question: We would now like you to think of your own wealth. Thinking of
a scale from 1 (the lowest or worst level) to 10 (the highest or best level):
Q39a. At what level do you believe you are currently?
Q39b. At what level would you like to be?
Estimation
•Use responses to Q39b as the dependent variable;
•Responses to the wealth aspiration question are ordered –
– ordered probit model;
– Generalized ordered probit model
– Semi-nonparametric estimation of extended ordered probit model
•Clustered standard errors
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9. Data - ERHS Survey Rounds
• Spatial coverage: 15 Kebeles
(villages);
• Temporal coverage:
1993/94-2008/9 (7 rounds
the last three roughly one
every 5 years)
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10. Variables – All survey rounds
Level of wealth the respondent would like to achieve
Wealth Aspiration
(measured using a 10-point scale)
Age Respondent's age in number of years
Age squared Respondent's age in number of years (squared)
Gender (male=1) Gender of respondent
Dummy - the respondent engages in non-farm activities
Non-farm activities (yes=1)
(Yes=1)
Dummy - the respondent is a member of an Iddir (funeral
Iddir (member=1)
association) (Member=1)
Married (yes=1) Marital status of the respondent (married=1)
Shock faced by respondent in the last 5 years - index
Shocks
calculated using principal components
Number of neighbours within a radius of 500m from the
Neighbourhood size
respondent's residence
Average growth in the real consumption per capita (in 1994
Average income growth of
prices) of the respondent's neighbours between Rounds 6 and
neighbours (round7-round6)
7 (%).
Income growth (round 2 - round 1) Growth in the real consumption per capita (in 1994 prices) of
- the respondent's household between successive survey
Income growth (round 7 - round 6) Rounds (%)
Number of rounds the respondent's family was classified as
Poor
poor (using the poverty line in 1994)
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11. Internal Locus of Control – Round 7
1
.8
.6
.4
.2
0 2 4 6 8
selfreported_wealth
Pr(internal_loc) 95% CI
Fitted values
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12. Marginal (Partial) Effects – All Rounds
dy/dx per one SD change (%)
Average
income Income Income
Married
growth of growth growth Poor
(yes=1)
neighbors (R6 – R7) (R5–R6)
(R6-R7)
Pr(Wealth Aspiration = 1) -0.25 -0.13 -0.09 -0.10 0.18
Pr(Wealth Aspiration = 2) -0.60 -0.34 -0.23 -0.26 0.31
Pr(Wealth Aspiration = 3) -1.50 -0.89 -0.60 -0.68 0.83
Pr(Wealth Aspiration = 4) -2.01 -1.27 -0.86 -0.96 1.17
Pr(Wealth Aspiration = 5) -2.73 -1.83 -1.24 -1.37 1.70
Pr(Wealth Aspiration = 6) -2.08 -1.56 -1.07 -1.18 1.45
Pr(Wealth Aspiration = 7) 0.15 -0.21 -0.14 -0.16 0.19
Pr(Wealth Aspiration = 8) 9.01 6.50 5.37 5.97 -5.84
Mean (SD) -18.2 (32.5) -18.3 (53.7) 2.2 (59.7) 2.8 (1.8)
Note: Figures in red are statistically significant at least at 10% level of significance.
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13. Variables – Rounds 6-7
Level of wealth the respondent would like to achieve
Wealth Aspiration
(measured using a 10-point scale)
Age Respondent's age in number of years
Age squared Respondent's age in number of years (squared)
Gender (male=1) Gender of respondent
Dummy - the respondent engages in non-farm activities
Non-farm activities (yes=1)
(Yes=1)
Dummy - the respondent is a member of an Iddir
Iddir (member=1)
(funeral association) (Member=1)
Married (yes=1) Marital status of the respondent (married=1)
Shock faced by respondent in the last 5 years - index
Shock
calculated using principal components
Number of neighbours within a radius of 500m from the
Neighbourhood size
respondent's residence
Logarithm of the value of assets (including farm
Log of asset value implements, furniture, jewelry) the respondent’s
household owned in survey round 7 (2008/09)
Logarithm of the average value of assets owned by the
Log of average asset value of respondent's neighbours (residents within 500m radius
neighbors of the respondent's house) excluding the respondent’s
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household 13

14. Marginal (Partial) Effects – Rounds 6-7
dy/dx per one SD change (%)
Log of average
Gender Log of asset
asset value of
(male=1) value
neighbors
Pr(Wealth Aspiration = 1) 0.01 -0.04 -0.04
Pr(Wealth Aspiration = 2) 0.01 -0.04 -0.04
Pr(Wealth Aspiration = 3) 0.05 -0.12 -0.10
Pr(Wealth Aspiration = 4) 0.11 -0.30 -0.34
Pr(Wealth Aspiration = 5) 0.30 -0.85 -1.02
Pr(Wealth Aspiration = 6) 0.45 -1.34 -1.43
Pr(Wealth Aspiration = 7) 0.74 -2.20 -2.45
Pr(Wealth Aspiration = 8) 0.74 -2.07 -2.45
Pr(Wealth Aspiration = 9) 0.18 -0.50 -0.57
Pr(Wealth Aspiration = 10) -2.63 7.44 8.51
Mean (SD) 7.1 (1.2) 7.7 (0.7)
Note: Figures in red are statistically significant at least at 10% level of significance. 14
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15. Observations
 Poorer individuals seem to have lower aspirations;
 Correlations but note that most of the relevant variables
lagged;
 Results persist across models;
 Encouraging result since data not designed for the purpose;
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16. Elements of the Aspirations Perspective
Aspiration Aspiration level Aspiration
window and gap failure
Well-being Efforts to improve
Aspired
Attained
Gap
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17. Elements of the Aspirations Perspective
Measurement Issues
• Aspirations are not directly observable
– Revealed by observed behaviour: interpretation issues (linking
aspirations and behaviour)
– Elicited using subjective questions: measurement issues
• Limits to subjective assessment:
– subjects’ willingness to report private knowledge, evaluation
apprehension, and subject role playing
– attributes of the instrument used: prior questions (anchoring), the
number of categories on the rating scale, the adjectives that are used as
the endpoints of the rating scale, and the adverbs that describe scale
categories.
(e.g. Delavande et al. (2009), Bertrand and Mullainathan (2001) for some
reviews)
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18. Elements of the Aspirations Perspective
Identification issues
• individual characteristics affect aspirations, aspiration windows
and behaviour (e.g. schooling levels, wealth, and family
background),
Particularly the endogeneity of the aspiration window a key
hurdle
• Investment ‘cause’ aspirations (e.g. the successful investor may
in turn revise his/her aspiration to a higher level), or
• aspirations ‘cause’ investment – the one we aim to identify.
An experimental design helpful to test the link between
aspiration window, aspirations and aspirations failures.
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19. Aspiration formation – A simple formulation
entral Proposition: ((Bandura (1993, 1994) in psychology, Appadurai
(2001) in sociology , Ray (2006) in economics):
Aspirations reflect:
 an individual’s aspiration window – peers and economic
opportunities of the local environment
 An individual’s own characteristics and past experience including
shocks;
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ait = q
ê i i i ,t i ,t ú
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