DP12012 Decentralization and Efficiency of Subsidy Targeting: Evidence from Chiefs in Rural Malawi

Author(s): Pia Basurto, Pascaline Dupas, Jonathan Robinson
Publication Date: April 2017
Keyword(s):
JEL(s): D73, I38, O12, Q12
Programme Areas: Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12012

Developing 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 tradeoff 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 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.