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A quantitative analysis of employment guarantee programmes with an application to rural India

  • Pushkar Maitra

This paper examines the welfare effects of a workfare programme in an economy where agents face exogenous income shocks and are unable to insure themselves through private markets. A dynamic general equilibrium model is calibrated using data from two ICRISAT villages in the Indian state of Maharashtra, which had a functioning Employment Guarantee Scheme (EGS), in the period 1979-84. The optimal wage and the welfare gains of the program depend on how productive the EGS is, relative to the private sector. When agents are paid the optimal wage rate, they do not hold the non-interest-bearing asset for precautionary savings and all insurance is provided by the EGS. There are significant welfare gains from paying the optimal wage rate as opposed to simply paying the marginal product of labour in the EGS.

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Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 10 (2001)
Issue (Month): 2 ()
Pages: 211-228

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Handle: RePEc:taf:jitecd:v:10:y:2001:i:2:p:211-228
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  1. Lim, Y. & Townsend, R.M., 1997. "General Equilibrium Models of Financial Systems: Theory and Measurement in Village Economies," Papers 9716, Centro de Estudios Monetarios Y Financieros-.
  2. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May.
  3. Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
  4. Rosenzweig, Mark R, 1988. "Risk, Implicit Contracts and the Family in Rural Areas of Low-income Countries," Economic Journal, Royal Economic Society, vol. 98(393), pages 1148-70, December.
  5. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-42, February.
  6. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
  7. Pushkar Maitra, . "A Quantitative Analysis of Employment Guarantee Programs with an Application to Rural India," Computing in Economics and Finance 1997 84, Society for Computational Economics.
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