Lower-income 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 advantages, but may be prone to elite capture. We study this trade-off in the context of two large-scale subsidy programs in Malawi (for agricultural inputs and food) decentralized to traditional leaders (“chiefs”) who are asked to target the needy. Using household panel data, 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 strict poverty-targeting. This could be welfare improving, since within-village redistribution is common. Productive efficiency targeting is concentrated in villages with above-median levels of redistribution.
Bibliographical noteFunding Information:
This research makes use of data collected as part of a research grant funded by the Bill and Melinda Gates Foundation, whose support is gratefully acknowledged. The data collection protocols were approved by the IRBs of Stanford, UCLA, and UCSC. We thank Aaron Dibner-Dunlap, Rachel Levenson and Michael Roscitt for outstanding field research assistance, and Travis Baseler and Santiago Saavedra for excellent research assistance. We are grateful to IPA and IPA Malawi for administrative assistance. We thank Monica Singhal, two anonymous referees, Siwan Anderson, Eric Edmonds, Marcel Fafchamps, Patrick Francois, Mushfiq Mobarak, Ben Olken, David Park, Quentin Stoeffler and numerous seminar participants for helpful comments. All errors are our own.
- Agricultural inputs
- Political economy
- Productive efficiency