UC-San Diego and MIT Economists May Bring into Focus the Financial Lives of Billions

By Jennifer Roche

(September 21, 2010 - Chicago, IL) - Economists Krislert Samphantharak of UC San Diego and Robert M. Townsend of MIT have defined a far-reaching framework that may contribute significantly to the meaningful assessment and analysis of the financial lives of the world's poor.

The lack of a cohesive framework for gathering and organizing data about the finances of poor households often results in data that are inconsistent or analysis that does not make sense. This inhibits the ability of researchers and policymakers to make sound decisions that truly benefit the poor.

In their book Households as Corporate Firms, published by Cambridge University Press, Samphantharak and Townsend establish a framework that shows how researchers can create detailed accounts for households based on corporate financial accounting principles.

The implications of this work are significant. For the first time, researchers have a logical, precise tool for establishing accounts from household surveys and for collecting data in a systematic way. By basing the accounts on the already widely accepted standards of corporate financial accounting, the data collected have greater accuracy and allow for unprecedented comparisons across households and regions.

Another significant aspect of this approach is that corporate financial accounts also serve as the foundation of national income and product accounts. Therefore, these household accounts could be used to estimate the contributions of small household businesses to a country's gross domestic product (GDP) similar to the way that larger incorporated businesses are.

Jonathan Morduch, of New York University and the author of Portfolios of the Poor, recognized the potential impact of this approach, “The analytical structures will allow economists to collect better data, ask sharper questions, and bring into focus important parts of the economic lives of billions of people.”

Krislert Samphantharak is an Associate Professor in the School of International Relations and Pacific Studies at the University of California, San Diego. Robert M. Townsend is the Elizabeth and James Killian Professor of Economics in the Department of Economics at the Massachusetts Institute of Technology. Their work was made possible, in part, by a grant from the John Templeton Foundation and by a grant from the Bill & Melinda Gates Foundation to the University of Chicago for the Consortium on Financial Systems and Poverty.