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The world's largest free money experiment is about to begin in October

Ranjan Crasta | Updated on: 27 September 2016, 22:16 IST

Various countries have trialled it, many economists have proposed it and Switzerland almost made it a reality. This coming October, the concept of universal basic income (UBI) - giving people a basic monthly allowance simply for existing, is set to undergo its largest and most comprehensive ever trial - in Kenya.

The trial run of this concept, one that's been mooted and debated since the 1790s, is being undertaken by the charity GiveDirectly and will encompass 200 villages in the East African country.

GiveDirectly and the largest ever UBI experiment

GiveDirectly is a unique charity. The general criticism of most international charities is that people aren't sure where their donations go. Usually, the charities transfer these funds to partner organisations who carry out the actual charity work. Along the way dollars and cents are lost to hidden costs and donors are eventually left clueless about how their money was actually spent.

GiveDirectly eliminates this uncertainty by identifying Kenyan families in need and directly transferring donation amounts to them electronically. With no hidden costs. For those wondering whether just giving money to the needy is a good idea, numerous studies have shown that direct cash transfers can be incredibly successful.

GiveDirectly's UBI attempt will run for 12 years and will affect the lives of roughly 26,000 people

Now, in a blogpost on their website, GiveDirectly has announced their most ambitious project yet - a pioneering UBI attempt running for 12 straight years that will affect the lives of roughly 26,000 people.

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To this end the organisation has raised USD 21 million from donors. They've also brought on board the likes of the former chairman of Barack Obama's Council of economic advisors, Alan Krueger.

Not only is Krueger one of the world's pre-eminent labour economists, he also co-authored a paper in 1994 that showed how minimum wage does not reduce employment, a study that has affected public policy worldwide. He will bring much needed expertise and visibility to the project. They have also brought J-PAL co-founder and MIT economics professor Abhijit Banerjee on board.

Now, with a decorated research team and the capital sorted, the biggest UBI experiment ever is set to unfold.

How it will work

The study will be launched in two counties in Kenya. The organisation chose Kenya as not only have they worked extensively in the country, establishing a strong network and infrastructure, but government regulations and stability are both conducive to the experiment. The Kenyan government has also experimented extensively with direct cash transfers to alleviate poverty and is supportive of the initiative.

It is not just an act of charity though. GiveDirectly is at pains to stress that this, in the end, is an experiment meant to highlight the benefits of long-term UBI. As such, the entire program is structured like a scientific study.

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There are 3 treatment groups to the study. The first group receives USD 0.75/day, paid monthly, for a period of 12 years. The second, meant to represent short-term UBI, receives the same allowance, but for only 2 years. The third group will receive a lump sum payment of what the second group receives over 2 years.

The first group will consist of 40 villages while the latter two will consist of 80 villages each.

In their blogpost they explain the logic behind the methodology:

"Comparing the first and second arms will shed light on how important the guarantee of future transfers is for outcomes today (e.g. taking a risk like starting a business). The comparison between the second and third arms will let us understand how breaking up a given amount of money affects its impact."

The immediate results of the experiment might only be felt in 200 villages in Kenya. However, the findings of the study could influence global attitudes towards UBI, possibly mainstreaming it.

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First published: 27 September 2016, 22:16 IST
 
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