Discovering the Power of Enterprise
For the past ten years, Townsend has been collecting intensive survey data in Thailand from approximately 1500 households in 100 villages. (Photo: William Harms)
Applied General Equilibrium Enterprise Economics
Robert M. Townsend
Research Professor, Department of Economics
Don't put all your eggs in one basket. This well-known aphorism may be especially true for developing economies since they are often particularly vulnerable to shocks in the forms of natural disaster, disease, market fluctuation, and political instability. One of the major forces for reducing poverty and empowering individuals and families in developing economies, according to Rob Townsend, is diversification. This allows some to engage in high risk, high return entrepreneurship and free enterprise.
Townsend began his research examining how medieval societies coped with similar kinds of risk before investigating present day rural India. In England households diversified their crops by cultivating non-contiguous strips of land, each holding up to 40 separate parcels of varying produce. This method ensured households a certain level of economic security in the face of any shocks, like floods or unforeseen changes in weather that threatened the harvest. In India households were more specialized, focusing on specific crops or occupations. Rather than diversifying through crops, they re-allocated risk using gifts and loans.
For the past ten years, Townsend has been collecting intensive survey data in Thailand from approximately 1500 households in 100 villages. This dataset includes monthly surveys (looking at, amongst others, household income and cash-flow) and annual resurveys. The Townsend Thai Data is believed to be one of the most expansive datasets in frequency, detail and scope, for any country on record. Using this data as well as secondary data, Townsend began to analyze the relationship between individual households and villages to regional and national economies. He has focused on households, analyzing them as if they were individual enterprises. This distinctly "bottom-up," entrepreneur-centered approach to analyzing wealth creation, which includes insights from anthropology, geography, and leading edge computer science, brings all the pieces together into one coherent picture. This is what Townsend has coined Applied General Equilibrium Enterprise Economics, or AGE3.
Townsend and his colleagues from the University of Chicago, MIT, and Yale are applying this method to the study of enterprise-based strategies which alleviate poverty in developing economies. In collaboration with MIT's Poverty Action Lab, Yale's Economic Growth Center, and the University of Chicago's Computation Institute, Townsend has forged "The Enterprise Initiative." Enabled by generous funding from the John Templeton Foundation, this initiative seeks to elucidate enterprise-based solutions to poverty by studying the specific factors that lead to success at the individual level. These factors range from attitudes, expectations, beliefs, and aspirations to problems like access to basic physical and financial infrastructure.
For more information, please visit the website at: http://www.enterpriseinitiative.org/.