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The Missing Link in Economic Development

Like the proverbial man with a hammer who sees every problem as a nail, economists study the world through the lens of incentives, and have developed a rich understanding of how market participants make decisions. But although incentives are important, developing countries must do more than institute the right ones.

CAMBRIDGE – You don’t have to be a neuroscientist to understand that your brain determines what you see at least as much as the objects of perception do. This is even more the case in the social world, which generally reflects concepts – such as freedom, democracy, corruption, or poverty – that one already has in mind. But if you are an economist, your mind has been trained to see the world through the additional layer of incentives.

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