Blum, Florian
(2017)
Essays on public service delivery and agricultural development.
PhD thesis, London School of Economics and Political Science.
Abstract
This thesis consists of three chapters that study public service delivery, nutrition and agricultural productivity in developing countries.
The first chapter investigates whether imposing price-caps on frontline service delivery agents enhances welfare. I implement a field experiment in which I randomize whether public extension agents are subject to a price-cap or not. I find that while price-caps are effective in enhancing the affordability of extension services and increasing recipients’ surplus, they also reduce the geographic coverage of services. This suggests that price-cap regulation creates a tension between making services affordable and providing incentives for agents to serve remote recipients. I then show that the marginal welfare effect of reducing discretion over prices can be expressed as a function of two sufficient statistics: the elasticity of geographic service coverage with respect to the price-cap and the price elasticity of demand. Calculating the welfare effects, I find that any reduction of agents’ discretion reduces social welfare.
The second chapter is concerned with contract design in public service delivery when delivery agents are boundedly rational. A theoretically efficient contract that minimizes moral hazard costs and avoids behavioural distortions charges agents a fixed fee for the usage of public assets and makes them residual claimants on its returns. I investigate whether such contracts are indeed efficient in practice by investigating whether imposing lump-sum fees on livestock extension agents distorts their choices. Using a field experiment, I first show that, contrary to classic economic theory, levying a fixed fee on agents leads them to increase user fees for a livestock vaccine and induces demand effects that reduce quantities. To understand the mechanisms underlying this result, I implement a series of lab-in-the-field experiments with a subset of the field-experimental participants. The results suggest that instead of setting prices for user fees as mark-ups over marginal costs agents use simplified rules-of-thumb that anchor pricing decisions on aggregate profits. The results highlight that boundedly rational behavior can reduce the effectiveness of adopting fixed fee contracts.
The third chapter investigates whether improvements to agricultural production technology, a common response to undernutrition, can enhance food security and improve nutrition. In India, groundwater irrigation using tube wells has long been promoted as a means to reduce rainfall-dependence and enhance food security. The merits of adopting tube wells have, however, been debated widely, with opponents fearing a deprivation of smaller farmers and impoverishment of rural laborers. To evaluate the causal effects of tube well adoption on nutrition, I employ an instrumental variable framework that exploits variation in land suitability for deep groundwater irrigation caused by differences in hydrogeological structures. I find that groundwater irrigation significantly improves nutrition across the income spectrum: a one standard deviation increase in the proportion of cropped area irrigated with tube wells increases calorie intake by 770 to 915 calories per day. In addition, groundwater irrigation generates positive spillovers on the calorie intake of urban populations and households not employed in agriculture. I present additional evidence which suggests that these effects are driven by increases in agricultural productivity that reduce staple prices and raise wage rates. The findings thus highlight the value of groundwater irrigation in fighting undernutrition and promoting agricultural development.
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