Towards a comprehensive social security system: an assessment of recent UBI proposals

Few people would disagree that welfare programmes in India are characterized by corruption, mistargeting and poor coordination, and impose high financial and environmental costs. A more pernicious consequence is the political culture of clientelistic vote buying they help create. Parties woo swing voters with the delivery of private short-term benefits such as Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) work, cheap food, liquor, sarees, domestic appliances, cash, subsidized loans, loan waivers and access to government services. Public goods or systematic programmes for lowering poverty, dependence, ignorance and disease (such as land reform, education, sanitation and public health) are neglected. Clientelism thrives on the provision of short-term benefits to a subsection of the poor, keeping them poor and perpetuating dependence on their patrons. Voting decisions of the poor are driven by self-interested considerations of securing political patronage, rather than expressing judgement on governance. It is no wonder then that public policy disasters and corruption scandals scarcely dent vote margins of popular chief ministers. Democracy thereby fails to deliver government accountability or long-term development.Accepted manuscrip

Ownership form and contractual ineficiency: Comparing performance of cooperatives and private factories in the Indian sugar industry.

This paper explores the role of differing contractual relationships between sugarcane farmers and sugar factories in india resulting from differing ownership structures. In Maharashtra most sugar factories are cooperatively owned by cane farmers, while in Utter Pradesh most factories are privately owned and purcahse cane from independent peasant farmers. The key incetive problem is that residual claimants to factory profits are inclined to exploit their monopsony power and underprice cane supplied by farmers. This results in undersupply of cane to factories, the extent of which depends on who owns the factory, besides the distribution of land between small and big growers. Predictions of the model are empirically verified from panel data spanning 1982-95 for private and coop factories in the two states. We find that the respective cane price distortions overwhelm the effect of changes in cane quality, technological change, prices or irrigation in accounting for differences in growth of the industry between different ownership forms and regions over this period.

Persistent Inequality

Existing literature explains persistent inequality either by ongoing shocks to abilities or preferences, or by a combination of technological indivisibilities, capital market imperfections and ad hoc assumptions concerning savings behavior. We focus on the role of pecuniary externalities - driven by endogenous movements in relative prices - in explaining both the emergence and persistence of long-run inequality. With imperfect capital markets, it turns out that long-run inequality is inevitable, even if investments are divisible, agents maximize dynastic utility, and there are no random shocks. However, the divisibility of investment does matter in determining the multiplicity of steady states: with perfect divisibility such multiplicity typically disappears. We subsequently characterize efficient steady states, and study non-steady-state dynamics in a two occupation context.

MNREGA: populist leaky bucket or anti-poverty success?

The world’s largest workfare programme – MNREGA – formed the backbone of the Indian United Progressive Alliance (UPA) government’s anti-poverty programme, and may well represent its most important legacy. While the programme was far from perfect, it was much more effective than other existing scheme

Contractual Structure and Wealth Accumulation

This paper examines incentives of poor agents to escape poverty by saving. Owing to limited liability, low wealth creates borrowing constraints, preventing the poor from being able to finance productive projects. Future wealth increases resulting from current saving would relax these borrowing constraints, raising future productivity and incomes, thus providing a possible channel of upward mobility. However, the extent to which these benefits accrue to the agents themselves depends on the allocation of bargaining power with their lenders (or landlords). If agents have no bargaining power, the returns to saving of poor agents are appropriated entirely by lenders, resulting in poverty traps. In this case the long run wealth distribution becomes polarized into two classes, with no middle class and no interclass mobility. If on the other hand the agents have all the bargaining power then the returns to saving accrue to them entirely, and agents accumulate wealth indefinitely irrespective of initial conditions.

Decentralised targeting of transfer programmes: a reassessment

Decentralised governance has been widely adopted in developing countries in the hope of incorporating local information into policymaking, enhancing accountability and encouraging democratic participation in the delivery of public services to the poor and needy. However, evaluations of experience with this change have highlighted problems of corruption, elite capture, and clientelism that have undermined the success of decentralisation in improving targeting of transfer programmes. Given recent advances in information technology, this chapter suggests the need to consider suitable reforms, including enhanced monitoring and recentralisation initiatives that reduce local officials’ scope for discretion. It provides an overview of recent research on these topics, and discusses key questions raised by their findings

Asymmetric information and middleman margins: an experiment with indian potato farmers

West Bengal potato farmers cannot directly access wholesale markets and do not knowwholesale prices. Local middlemen earn large margins; pass-through from wholesale to farmgate prices is negligible. When we informed farmers in randomly chosen villages about wholesale prices, average farmgate sales and prices were unaffected, but pass-through to farmgate prices increased. These results can be explained by a model where farmers bargain ex post with village middlemen, with the outside option of selling to middlemen outside the village. They are inconsistent with standard oligopolistic models of pass-through, search frictions, or risk-sharing contracts.We acknowledge grants from the Hong Kong Research Grants Council, the International Food Policy Research Institute in Washington DC, the International Growth Centre at the London School of Economics, the Hong Kong Research Grants Council, and USAID's Development Innovation Ventures program. We are grateful to three anonymous referees, Abhijit Banerjee, Francesco Decarolis, Jordi Jamandreu, Dan Keniston, Asim Khwaja, Kaivan Munshi, Rohini Pande, Marc Rysman, Chris Udry, and participants at several seminars and conferences. We received excellent research assistance from Khushabu Kasabwala, Prathap Kasina, Arpita Khanna, Clarence Lee, Owen McCarthy, Sanyam Parikh, Moumita Poddar, Sunil Shoo, and Ricci Yeung. All errors are our own. (Hong Kong Research Grants Council; International Food Policy Research Institute in Washington DC; International Growth Centre at the London School of Economics; USAID's Development Innovation Ventures program)Accepted manuscrip

Middleman margins and asymmetric information: an experiment with potato farmers in West Bengal

West Bengal potato farmers cannot directly access wholesale markets and do not know wholesale prices. Local middlemen earn large margins; pass-through from wholesale to farm-gate prices is negligible. When we informed farmers in randomly chosen villages about wholesale prices, average farm-gate sales and priceswere unaffected, but pass-through to farm-gate prices increased. These results can be explained by a model where farmers bargain ex post with village middlemen, with the outside option of selling to middlemen outside the village. They are inconsistent with standard oligopolistic models of pass-through, search frictions or risk-sharing contracts.Accepted manuscrip

Land acquisition and compensation in Singur : what really happened?

This paper reports results of a household survey in Singur, West Bengal concerning compensation offered by the state government to owners of land acquired to make way for a car factory. While on average compensations offered were close to the reported market valuations of land, owners of high grade multi-cropped (Sona) lands were undercompensated, which balanced over-compensation of low grade mono-cropped (Sali) lands. This occurred owing to misclassification of most Sona land as Sali land in the official land records. Under-compensation relative to market values significantly raised the chance of compensation offers being rejected by owners. There is considerable evidence of the role of financial considerations in rejection decisions. Land acquisition significantly reduced incomes of owner cultivator and tenant households, despite their efforts to increase incomes from other sources. Agricultural workers were more adversely affected relative to non-agricultural workers, while the average impact on workers as a whole was insignificant. Adverse wealth effects associated with under-compensation significantly lowered household accumulation of consumer durables, while effects on other assets were not perceptible. Most households expressed preferences for non-cash forms of compensation, with diverse preferences across different forms of non-cash compensation depending on occupation and time preferences

Forest Degradation in the Himalayas: Determinants and Policy Options

This paper summarizes findings from a decade-long project on forest degradation in the mid-Himalayan region of India and Nepal. The analysis is based on LSMS data for Nepal and field work in Indian states of Uttaranchal and Himachal Pradesh comprising sample surveys of forests, households and village communities, besides commissioned anthropological studies for select villages. The purpose was to ascertain the nature and magnitude of deforestation and degradation from ground-level forest measurements, its implications for living standards of local communities, the contribution of different factors commonly alleged such as local poverty, inequality, economic growth, demographic changes, property rights and lack of collective action by local communities. Principal findings, policy implications and questions for future research are discussed.