Option Values, Switches and Wages - An Analysis of the Employment Guarantee Scheme in India
AbstractConsistent with the theory of real options, it is argued that the value of the Employment Guarantee Scheme (EGS) in the Indian state of Maharashtra and its impact on workers` behaviour do not depend so much on its income supplementation as on enlargement of opportunities in an uncertain environment of the local labour market. The choice between the EGS and other activities in rural areas is modelled in a dynamic optimisation framework that takes into account a fixed wage rate and certainty of employment under the former and a stochastic wage rate in the latter. Besides, entry and exit costs of various employment options are taken into account. Finally, allowance is made for volatility of regular labour market activities (e.g. agricultural wage earnings). The predictions of this model are validated with the help of a panel household survey in a semi-arid region of south India. If this analysis has any validity, the incentive case for rural public works schemes such as the EGS in terms of screening and deterrent arguments, premised on a fixed wage rate differential, needs to be reformulated.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 164.
Date of creation: 01 Jun 2003
Date of revision:
options; uncertainty; entry and exit costs; incentives;
Other versions of this item:
- Pasquale Scandizzo & Raghav Gaiha & Katsushi Imai, 2009. "Option Values, Switches, and Wages: An Analysis of the Employment Guarantee Scheme in India," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 248-263, 05.
- Katsushi Imai & Pasquale Scandizzo & Raghav Gaiha, 2004. "Option Values, Switches And Wages - An Analysis Of The Employment Guarantee Scheme In India," Royal Economic Society Annual Conference 2004 133, Royal Economic Society.
- D3 - Microeconomics - - Distribution
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- H5 - Public Economics - - National Government Expenditures and Related Policies
- I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- T. N. Srinivasan, 1994. "Destitution: A Discourse," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1842-1855, December.
- Subramanian, S. & Deaton, A., 1994.
"The Demand for Food and Calories,"
175, Princeton, Woodrow Wilson School - Development Studies.
- Gaiha, Raghav, 2000. " On the Targeting of the Employment Guarantee Scheme in the Indian State of Maharashtra," Economic Change and Restructuring, Springer, vol. 33(3), pages 203-19.
- Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March.
- Martin Ravallion & Gaurav Datt, 1995. "Is Targeting Through a Work Requirement Efficient? Some Evidence for Rural India," Development Research Unit Working Paper Series archive-41, Monash University, Department of Economics.
- Raghav Gaiha, 2000. "On the Targeting of the Employment Guarantee Scheme in the Indian State of Maharashtra," Economic Change and Restructuring, Springer, vol. 33(3), pages 203-219, October.
- Raghav Gaiha, 2004. "Is There a Case for the Employment Guarantee Scheme in India? Some Recent Evidence," ASARC Working Papers 2004-09, The Australian National University, Australia South Asia Research Centre.
- Katsushi S. Imai & Raghav Gaiha & Ganesh Thapa, 2012. "Does Non-farm Sector Employment reduce Rural Poverty and Vulnerability? Evidence from Vietnam and India," Discussion Paper Series DP2012-25, Research Institute for Economics & Business Administration, Kobe University, revised Nov 2012.
- Klonner, Stefan & Oldiges , Christian, 2014. "Safety Net for India's Poor or Waste of Public Funds? Poverty and Welfare in the Wake of the World's Largest Job Guarantee Program," Working Papers 0564, University of Heidelberg, Department of Economics.
- Deepak, Shah, 2012. "Implementation of NREGA in Maharashtra: experiences, challenges and ways forward," MPRA Paper 39270, University Library of Munich, Germany.
- Margaret Grosh & Carlo del Ninno & Emil Tesliuc & Azedine Ouerghi, 2008. "For Protection and Promotion : The Design and Implementation of Effective Safety Nets," World Bank Publications, The World Bank, number 6582, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).
If references are entirely missing, you can add them using this form.