Over the past decade, India’s BJP-led national government has undertaken various reforms to welfare programs, aiming to reduce the scope for local officials to manipulate beneficiary selection or divert funds. Nevertheless state and local governments retained considerable discretion over beneficiary selection and the local delivery of central government funded welfare benefits, and have maintained exclusive control over state-funded programs. We use longitudinal household survey data from the state of West Bengal to evaluate the effects of these reforms on pro-poor targeting of welfare programs, and political competition between the BJP and the TMC, the incumbent political party in the state. We find that welfare programs were better targeted toward poorer and socially disadvantaged households in the period 2014–2018 than in 2010–2013. However the welfare reforms do not explain why the BJP’s vote share increased, as its electoral gains from the new nationwide programs were outweighed by their losses, stemming from the increased support for the TMC from recipients of new state and pre-existing benefits.

The macrodevelopment literature on misallocation quantifies aggregate productivity losses resulting from microeconomic distortions, relative to a first-best benchmark. However, sources of these distortions are often insufficiently explored. The microdevelopment literature in contrast provides evidence of distortions resulting from market failures owing to asymmetric information, missing markets, transaction costs, and limited state capacity, often without examining the resulting macrolevel consequences. If distortions result from such market failures rather than policies, second-best welfare-improving policies may aggravate productive misallocation. We illustrate these points in the context of manufacturing, agriculture, and rural-urban allocation of labor and land. Hence future research should devote more effort to identifying the source of distortions and using appropriate benchmarks for welfare going beyond productivity.

It has been argued that since 2014, under the BJP-led central government, welfare benefits in India have become better targeted and less prone to clientelistic control by state and local governments.Arguably this has helped to increase the vote share of the BJP vis-a-vis regional parties.We test these hypotheses using longitudinal data from 3500 rural households in the state of West Bengal.We fail to find evidence that the new "central" programs introduced after 2014 were better targeted than traditional "state" programs, or that the targeting of state programs improved after 2014.Households receiving the new "central" benefits introduced since 2014 were more likely to switch their political support to the BJP.However, changes in the scale, composition or targeting of these programs, in clientelistic effectiveness of traditional state programs or in household incomes, fail to account for the large observed increase in the voters' support for the BJP.Non-Hindus, especially recent immigrant non-Hindus, were much less likely to switch support to the BJP, even after controlling for benefits received and changes in household incomes.Our results suggest that ideology and identity politics were more important factors explaining the rising popularity of the BJP.

Using rural household survey data from West Bengal, we find that voters respond positively to excludable government welfare benefits but not to local public good programs, while reporting having benefited from both. Consistent with these voting patterns, shocks to electoral competition induced by exogenous redistricting of villages resulted in upper-tier governments manipulating allocations across local governments only for excludable benefit programs. Using a hierarchical budgeting model, we argue these results provide credible evidence of the presence of clientelism rather than programmatic politics.

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We conduct a field experiment in India comparing two ways of delegating selection of microcredit clients among smallholder farmers to local intermediaries: a private trader (TRAIL), versus a local-government appointee (GRAIL). Selected beneficiaries in both schemes were equally likely to take up and repay loans, and experienced similar increases in borrowing and farm output. However farm profits increased and unit costs of production decreased significantly only in TRAIL. While there is some evidence of superior selection by ability and landholding in TRAIL, the results are mainly driven by greater reduction of unit production costs for TRAIL treated farmers than GRAIL treated farmers of similar ability or landholding. We develop and test a model where the TRAIL agents' role as middlemen in the agricultural supply chain enabled and motivated them to offer treated farmers business advice, which helped them lower unit costs.

Persistence of sharecropping tenancy, and increases in farm productivity resulting from regulations protecting tenant rights have been observed in many developing countries. This paper examines if these can be explained by alternative models of sharecropping with two sided efforts/investments, namely, complete contract models, either without wealth constraints ( Eswaran-Kotwal, 1985 ) or with a wealth constrained tenant ( Mookherjee, 1997 ; Banerjee-Gertler-Ghatak, 2002 ), and incomplete contract holdup models without wealth constraints (Grossman Hart, 1986). In the absence of wealth constraints, the complete contract model always results in (incentive constrained) surplus-maximizing productivity; thus, there can be no scope for tenancy regulations to raise productivity. In the incomplete contract model, tenancy regulations would raise productivity only if the tenant’s investments are more important than the landlord’s investment. But in that case, sharecropping tenancy would not persist in the absence of wealth constraints, as the tenant would have purchased the land right ex ante from the landlord. The model with wealth constraints helps explain both the persistence of tenancy and the productivity/surplus enhancing effects of tenancy regulations. JEL Classifications: D02, D23, OI2, OI3

We develop a political economy model where political clientelism co-exists with elite capture and derive its implications for targeting of local government benefits. The model helps explain targeting impacts of gender and caste based political reservations in West Bengal local governments documented by previous empirical studies. We argue these targeting patterns cannot be explained by standard political economy models, or by the presence of either elite capture or clientelism in isolation.

As in many other parts of the world, India has witnessed a surge in the popularity of the Bharatiya Janata Party (BJP), a right wing nationalist party. This paper examines the respective roles of economic policy and “identity politics” for the sharp rise in support for BJP in a region where it had a negligible vote share until 2014. Using household level panel data from 3500 rural households in West Bengal, we examine the effect of different welfare benefits delivered by state and national governments, on support for the regional incumbent (Trinamool Congress (TMC)) and the BJP after 2014. We find that receipt of these benefits was associated with increased support for the respective party controlling either level of government. However, changes in scale, effectiveness, composition or targeting of these benefits cannot account for the large observed increase in the relative popularity of the BJP. We also find no evidence of any association with post-2014 economic distress of the household, or political violence attributed to TMC party activists in the 2018 local government elections. On the other hand, religion, tribal and immigrant status of households are strong and robust predictors of changes in political support, irrespective of controls for welfare benefits and household incomes. Hence the results indicate that the BJP’s rise in West Bengal reflected the growing importance of identity politics per se, rather than economic policies. Authors' contact information Pushkar Maitra Department of Economics, Monash University, Clayton Campus, VIC 3800, Australia Email: pushkar.maitra@monash.edu.au Sandip Mitra Sampling and Official Statistics Unit, Indian Statistical Institute, 203 B.T. Road, Kolkata 700108, India Email: Sandip@isical.ac.in Dilip Mookherjee Department of Economics, Boston University, Boston, MA 02215, USA Email: dilipm@bu.edu Sujata Visaria Department of Economics, Lee Shau Kee Business Building, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong Email: svisaria@ust.hk Economic Policies vs. Identity Politics: The Rise of a Right-wing Nationalist Party in India ∗ Pushkar Maitra† Sandip Mitra‡ Dilip Mookherjee§ Sujata Visaria

This research examines the determinants of entrepreneurship in the initial transition from agriculture to industrial production and the subsequent transition to higher value exporting in China.Using data covering the universe of registered firms over the 1994-2009 period, we find that individuals born in rural counties with higher agricultural productivity and population density had a greater propensity to enter domestic production in the first transition, but that this association was reversed in the second transition to exporting.This is despite the fact that revenues (and productivity) were increasing more steeply over time for firms drawn from denser birth counties in both activities.The model that we develop to reconcile these facts incorporates a productivity enhancing role for hometown (birth county) networks.We provide causal evidence, using shift-share instruments, that these networks of firms were active and that more densely populated rural counties gave rise to networks that were more effective at increasing the revenues of their members, both in domestic production and exporting.While this generated faster transition in the first stage, the incumbent (more successful) domestic networks drawn from denser counties created a disincentive to subsequently enter exporting.Our analysis identifies a novel dynamic inefficiency that could arise in any developing economy where (overlapping) networks are active.

We study regulatory mechanism design with collusion between a privately informed agent and a less well-informed supervisor, incorporating 'extortion' which permits redistribution of rents within the coalition. We show the Collusion Proof Principle holds, and that the allocation of bargaining power between the supervisor and agent matters. Specifically, the Principal does not benefit from hiring the supervisor if the latter has less bargaining power vis-a-vis the agent. We provide an example where hiring the supervisor is valuable if she has greater bargaining power. These results indicate the importance of anti-collusion strategies that augment bargaining power of supervisors vis-a-vis agents.

Past research has provided evidence of clientelistic politics by local governments in delivery of private good benefits and manipulation of local budgets by elected officials at upper tiers. Using household panel survey data spanning 1998–2008 in West Bengal, India, we examine the consequences of replacing the observed allocation of local government, or gram panchayat (GP), program budgets based on discretion of higher level officials, with a grant allocation determined by a formula recommended by the 3rd West Bengal State Finance Commission (SFC) based on measures of village need. We assume that the allocation of benefits within GPs continues to be delegated to elected GP officials. We use the household data to classify them as ultra-poor, moderately poor, marginally poor, and non-poor respectively, depending on the number of deprivation dimensions applicable (landlessness, illiteracy and low caste status). In the next step, we estimate within-GP targeting patterns for different programs across these four groups, and how they are affected by the program grant received by the GP from upper tiers. This allows us to predict how targeting patterns would have changed, had the observed across-GP grant allocations been replaced by the formula-based allocation. We find that targeting of anti-poverty programs was progressive both within and across GPs while the targeting of public goods was not. This pattern is consistent with clientelistic opportunism of upper level officials. The SFC-rule based formula resulted in allocations that were less progressive than the observed allocation. Moreover, alternative formulae for across-GP budgets obtained by varying weights on GP characteristics used in the formula would have marginally improved pro-poor targeting. Hence, it is unlikely that switching to SFC formula-based grants would have improved pro-poor targeting.

We characterize Pareto efficient long term ‘relational’ lending contracts with one-sided lender commitment in a context where the borrower can accumulate wealth, has intertemporal consumption smoothing preferences, and the lender has some sanctioning power following default. We show the negative results of Bulow and Rogoff (1989) do not apply irrespective of the extent of sanctions, the borrower's preferences for smoothing, initial wealth or relative welfare weight. Borrowing, investment and wealth grow and converge to the first-best. Optimal allocations can be implemented by backloaded ‘progressive’ lending: a sequence of one period loans of growing size.

Abstract We discuss reasons why traditional rural communities may be reluctant to voluntarily relinquish their access to land despite being compensated at market prices, thereby limiting the scope for reallocating land to more productive uses in agriculture or urban development. Owing to financial market imperfections, insurance and collateral benefits of land ownership imply that welfare-optimal land allocations may not maximize productive efficiency, even if distributive or environmental considerations are ignored. We provide some suggestive evidence and discuss implications for land acquisition policy.

We study the long run implications of workplace automation induced by capital accumulation. We describe a minimal set of sufficient conditions for sustained growth, along with a declining labor share of income in the long run: (i) a basic asymmetry between physical and human capital; (ii) the technical possibility of automation in each sector; (ii) a self-replication condition on the production function for robot services; (iv) asymptotic homotheticity (more generally neutrality) of demand, and (v) a minimal degree of patience or intergenerational altruism among a fraction of households. However, the displacement of human labor is gradual, and absolute real wages could rise indefinitely. The results obtain in the absence of any technical progress; they extend to endogenous technical progress even if such progress is not biased ex ante in favor of automation.

We argue that community networks played an important role in the emergence of Indian entrepreneurship in the early stages of the cotton textile and jute industry in the late 19th and early 20th century respectively, overcoming the lack of market institutions and government support. From business registers, we construct a yearly panel dataset of entrepreneurs in these two industries. We find no evidence of entry patterns being affected by price shocks or pre-industrial accumulation of wealth or experience in trading in the corresponding upstream sector. Firm directors exhibited a high degree of clustering of entrepreneurs by community. The dynamics of entry is consistent with a model of network-based dynamics.

Most analyses of randomized controlled trials of development interventions estimate an average treatment effect on the outcome of interest. However, the aggregate impact on welfare also depends on distributional effects. We propose a simple method to evaluate efficiency–equity trade-offs in the utilitarian tradition of Atkinson (1970). This involves an estimation of the average treatment effect on a monotone concave function of the outcome variable, whose curvature captures the degree of inequality aversion in the welfare function. We argue this is preferable to the current practice of examining distributional impacts through sub-group analysis or quantile treatment effects. We illustrate the approach using data from a credit delivery experiment we implemented in West Bengal, India.