Decentralization and Efficiency of Subsidy Targeting: Evidence from Chiefs in Rural Malawi
Pia Basurto, Pascaline Dupas, Jonathan Robinson
Abstract
Developing countries spend vast sums on subsidies. Beneficiaries are typically se- lected via either a proxy-means test (PMT) or through a decentralized identification process led by local leaders. A decentralized allocation may offer informational ad- vantages, 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 food) de- centralized 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.
Keywords: targeting, decentralization, political economy, agricultural inputs, chiefs, subsidies
JEL Codes: I38, O12, Q12, D73