How Michael Kremer is transforming global research in development economics

Helping to establish the experimental method in development economics earned Kremer a share of the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. In awarding the honor to Kremer, Abhijit Banerjee, and Esther Duflo, the committee heralded a burgeoning approach to reducing global poverty that “involves dividing this issue into smaller, more manageable questions.”

Standing on stage at Stockholm University, Kremer opened his acceptance speech by describing the mentorship of a Kansas State University theoretical physicist, Larry Weaver. He recalled that he was surprised one day when Weaver mentioned being happy that a colleague had discovered an error in his work. He was happy, Kremer explained, “because he cared about advancing science.”

Kremer views experimental economics as complementing the more abstract, model-based work that has long characterized the mainstream of the discipline. As he put it in his Nobel lecture, Kremer began his academic career working “mostly alone or with one or two coauthors, using models and data which others had collected.” It was serendipity, he said, that his time in Kenya gave him the chance to work in the field, to collaborate with people in other fields, and to experiment with randomized controlled trials—a method that could “cleanly isolate the causal impact of a program or policy from confounding factors.”

Through doing that work, one experiment at a time, he came to see how the experimental method could be elevated to “a fundamentally different type of economics research,” one distinguished by the richness of its empirical context and the specificity of the practical questions it attempts to solve.

This way of working also requires a high degree of collaboration. “It’s obviously fantastic to get the prize,” Kremer says, but he is quick to spread the credit to a broad group of partners that includes fellow development economists; the personnel collecting survey data; allied researchers from disciplines such as education and psychology; funders like the British Department for International Development (now the Foreign Commonwealth and Development Office), the World Bank, and the US Agency for International Development (USAID); and the farmers, teachers, and other people he has met and learned from. “You wind up spending a lot of time in the field,” Kremer says. “That exposes the economist to a richer set of ideas.”

In his Nobel lecture Kremer shared his greatest hope for the work he does: “innovations in social institutions designed to accelerate scientific and technological change and orient it toward human needs.”

In 2020 Kremer brought his engaged experimental approach to the University of Chicago when he joined the Kenneth C. Griffin Department of Economics and the Harris School of Public Policy as a University Professor. It’s technically not the first time Kremer has taught on the quads—he was a visiting professor in the spring of 1993—but his responsibilities are much greater today. Notably, he is serving as faculty director of the new Development Economics Center, part of the Becker Friedman Institute for Economics (BFI).

Announced in January, the Development Economics Center continues the interdisciplinary work of BFI’s previous Development Economics Research Initiative: developing collaborative approaches to the challenges faced by lower-income countries, engaging with policy makers, and awarding grants to UChicago PhD students and junior faculty working in the field. The Development Economics Center also includes the Weiss Fund for Research in Development Economics, to which Kremer and his co-recipients donated their Nobel Prize money, and the Development Innovation Lab, where Kremer has been serving as founding director since his arrival in 2020.

“The University of Chicago is extremely fortunate to have Michael Kremer leading our collaborative development economics efforts,” says BFI director Michael Greenstone, LAB’87, the Milton Friedman Distinguished Service Professor in Economics and the College. He calls Kremer “a true pioneer in conducting experiments with randomized controlled trials to explore the root causes of poverty in developing countries.”

That work, agrees economics chair and Alvin H. Baum Professor in Economics and the College Robert Shimer, “has been really transformative for the type of research people are doing in development economics, the kinds of questions they’re asking, and outcomes that are improving people’s lives around the world.” Even so, this tells only part of the story. Kremer “is a broad economist whose work is both theoretical and empirical,” Shimer adds, and the fruitfulness of his experiments relies on the strength of the theory informing them.

“To do good empirical research, you also need to understand economic theory to have a sense of where to look for solutions,” Shimer says, pointing out that Kremer’s theoretical acumen has been applied widely. For instance, building on a body of past work on the economics of vaccine development, Kremer has turned much of his attention since arriving on campus to the pressing global public health issue that emerged around that time: COVID-19.

Early in the COVID-19 pandemic, Kremer was asked by several governments and international agencies for advice on vaccine financing. He assembled the Accelerating Health Technologies group, which includes economists as well as biostatisticians with expertise in epidemiology and pharmacology. Together they conducted analysis and made recommendations to policy makers. For example, they advised the US government in the run-up to Operation Warp Speed, the public-private partnership initiated in 2020 in which different vaccines were developed simultaneously and produced before their efficacy was known. Speed was critical, and it would have been “penny-wise and pound-foolish,” Kremer says, to delay building large factories to develop these unproven vaccines, even if the facilities cost millions of dollars.

The United States and United Kingdom went for this approach, but Kremer says he would have preferred to see it happen on an even larger scale—with vaccine production capacity being built in advance for as many as 15 or 20 different vaccines. The fact that multiple vaccines worked for COVID-19 is “really lucky,” he believes, given that there are far longer-known viruses like HIV that we still have not figured out how to inoculate ourselves against.

Vaccines also raise an issue that economists think about regularly: supply and demand. After effective vaccines are developed, there is still the question of getting them where they are needed. Chicago Booth’s Eric Budish, the Paul G. McDermott Professor of Economics and Entrepreneurship, and Canice Prendergast, the W. Allen Wallis Distinguished Service Professor of Economics, have contributed to the work on this problem. Building on his prior research on using market mechanisms to meet demand at food banks, Prendergast—also an affiliate of the Development Economics Center and a member of the Accelerating Health Technologies group—worked to design a system that would allow a country to send its surplus vaccine supply to other countries in need and then get paid back with doses later, when its own supply falls low.

Kremer’s contributions to the world of vaccine development predate the emergence of the novel coronavirus. In 2004 Kremer and Glennerster proposed something called an advance market commitment (AMC) in their book Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases (Princeton University Press).

The coauthors were aiming to address a basic problem in market economies: no matter how many people need a product, they will not constitute a market for that product if they do not have the money to pay for it. Malaria killed over 600,000 people in 2020, for instance, but markets do not necessarily respond to sickness and death.

An AMC creates a market where there was none. It asks donors to agree in advance to subsidize the initial purchase of effective vaccines by lower-income countries if those vaccines are developed. The purchasing country pays a nominal copayment; the vaccine maker agrees to a price affordable in the developing country; and the donor fund contributes a per-dose top-up price to ensure the company’s investment in research and development is repaid. In this way, private firms are incentivized to undertake research and development for treatments that might not otherwise be profitable.

Kremer’s studies use economic analyses to design interventions for human good, and AMCs show how diverse these interventions can be: a change in curriculum, a deworming pill, or an entirely new kind of market.

In 2007 a pilot AMC intended to spur a vaccine for pneumococcus—the main cause of pneumonia globally—netted a pledge of $1.5 billion from a group of donors comprising the Bill & Melinda Gates Foundation and the countries of Canada, Italy, Norway, Russia, and the United Kingdom. The AMC kicked off in 2009 under the supervision of Gavi, the Vaccine Alliance (formerly the Global Alliance for Vaccines and Immunization), with firms competing for 10-year vaccine supply contracts intended to inoculate children in more than 70 countries meeting specific criteria. By the time of a 2020 paper, Kremer and two coauthors, all of whom had helped design the pilot, were able to report the development of three vaccines by different firms, 150 million children immunized, and an estimated 700,000 lives saved.

“For the past couple decades Michael has been one of the leading thinkers on incentives for creating new vaccine research,” says Christopher Blattman, the Ramalee E. Pearson Professor of Global Conflict Studies, citing the pneumococcus vaccine as well as a promising new malaria vaccine as examples of incentives at work.

AMCs are not limited, in principle, to vaccine development. It’s a heady idea: if there is no market for addressing some need, you can try to create one.

For instance, AMCs may become a new tool in the fight against climate change. In a story that cites the pneumococcus AMC as precedent, National Public Radio has reported on the idea of using an AMC to incentivize entrepreneurs to develop carbon-removal technologies. While climate activists agree that carbon emissions must be reduced at the source, the idea of extracting massive amounts of existing carbon out of the atmosphere is gaining traction. Among those calling for a carbon-removal AMC is Glennerster, who helped make the case for the strategy in a December Politico opinion piece, floating the idea of a $1 billion commitment to provide a “critical demand signal to scientists, founders and investors, giving them the confidence needed to begin building now.”

Again and again, Kremer has conducted small studies to approach big problems. In many ways, these studies are a natural complement to existing research at UChicago. For instance, Kremer has used ideas from behavioral economics—another empirically informed subfield of economics that has grown in recent decades thanks to the work of 2017 Nobelist Richard Thaler, the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics, and others at UChicago. As opposed to neoclassical economics, which assumes that people act according to well-defined, rational preferences, behavioral economics draws on insights from psychology to model and describe people’s real-world behavior.

For example, in addressing the problem that hundreds of thousands of children die of diarrhea each year due to unsafe drinking water, Kremer and colleagues did not merely test the efficacy of a treatment (a simple dilute chlorine solution). They also asked how to get people to use it. What is the right “nudge,” in the language of behavioral economics, to get the desired behavioral result?

As with intestinal worms, a promising treatment was at hand, ready to be backed up by experimentation. Water treatment with chlorination is cheap, effective, and widely available. But in rural Kenya, few people treated their water. Kremer and his colleagues found that placing dispensers of water treatment solution at public water sources substantially increased usage. Public dispensation gives people the convenience of adding the treatment right as they draw their water—and the fact that it’s public means they are modeling the practice for others. Sensitivity to habits, biases, and social cues, as opposed to abstract preferences, proved useful to understanding and influencing people’s actions in the real world.

Notably, Kremer’s prior research had already indicated that use of the water treatment significantly increased when it was free instead of merely low-cost, a finding that runs counter to the notion that you must charge something for a product to make people value it. For this kind of product under these conditions, charging nothing is demonstrably better than charging next to nothing.

Christina Brown, a Saieh Family Fellow at the Becker Friedman Institute, says that reading Kremer’s research as a master’s student showed her that she didn’t have to choose between academic research and making a difference in the world. Brown, who is slated to join the economics department as an assistant professor in 2023, will work along with Kremer to further bolster development economics at the University.

“While there have always been fantastic development economists at Harris and Booth, the economics department did not have as many scholars in that area as of a few years ago,” Brown says. Now, she believes, the University of Chicago is “in the top two or three places in the world to study and do development work.”

As Kremer inspires young scholars in his field—and funds them through the Development Economics Center—he continues pursuing his own research into the causes and conditions of poverty. Commentators tend to have a favorite go-to solution for the problem, he notes: more education, more physical capital, more democracy, and so on. In his experience, though, the solution depends critically on the country, the local community, and the sector of the economy. “We know a lot less than we think we know,” he says, and focusing on the specifics can “break you out of some theoretical straitjackets.” Deeper understanding is often just a well-designed experiment away.

—This story was originally published on the University of Chicago Magazine website.