Abstract
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.
Highlights
Targeting programs such as subsidies to needy households is an important part of what governments do
While chiefs do worse than the proxy-means test (PMT) in terms of poverty targeting, we find that chiefs use their informational advantage to the benefit of households hit with negative shocks: people who have experienced droughts, floods, cattle death, or crop disease are significantly more likely to receive subsidies
We compute the sum of expenditures on these 10 food categories over the 30 days preceding the survey and divide the sum by the number of household members to construct “per capita non-staple food expenditure” or PCF, our measure of need going forward.[14]
Summary
Targeting programs such as subsidies to needy households is an important part of what governments do. This paper uses rich panel data collected from a sample of 1,559 households over four survey rounds in 2011-2013 to explore this fundamental trade-off in the context of two subsidy programs in Malawi – the well-known farming input subsidy program which provides subsidies for fertilizer and hybrid seeds once a year, and a one-time food aid relief program put in place after a drought in 2012. These programs were conceived as anti-poverty programs and the selection of beneficiaries was decentralized to local traditional leaders, called chiefs.
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