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Decentralization and Efficiency of Subsidy Targeting: Evidence from Chiefs in Rural Malawi

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  • Pia M. Basurto
  • Pascaline Dupas
  • Jonathan Robinson

Abstract

Developing countries spend vast sums on subsidies. Beneficiaries are typically selected via either a proxy-means test (PMT) or through a decentralized identification process led by local leaders. A decentralized allocation may offer informational or accountability advantages, but may be prone to elite capture. We study this tradeoff in the context of two large-scale subsidy programs in Malawi (for agricultural inputs and for food) decentralized to traditional leaders (“chiefs”) who are asked to target the needy. Using high-frequency household panel data on neediness and shocks, we find that nepotism exists but has only limited mistargeting consequences. Importantly, we find that chiefs target households with higher returns to farm inputs, generating an allocation that is more productively efficient than what could be achieved through a PMT. This could be welfare improving, since within-village redistribution is common.

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  • Pia M. Basurto & Pascaline Dupas & Jonathan Robinson, 2017. "Decentralization and Efficiency of Subsidy Targeting: Evidence from Chiefs in Rural Malawi," NBER Working Papers 23383, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23383
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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