2015 Discussion papers
School of Economics Discussion Paper 15/03
Public Good Provision in Indian Rural Areas: the
Returns to Collective Action by Microfinance Groups
Paolo Casini and Lore Vandewalle and Zaki Wahhaj
LICOS Center for Institutions and Economic Performance, Uniuversity of Namur and University of Kent
Self-help groups (SHGs) are the most common form of microfinance in India. We provide evidence that SHGs, composed of women only, undertake collective actions for the provision of public goods. Using a theoretical model, we show that an elected official, whose aim is to maximise re-election chances, would exert higher effort in providing public goods when private citizens undertake collective action and coordinate their voluntary contributions towards the same goods. This effect occurs although government and private contributions are assumed to be perfect substitutes. Using first-hand data on SHGs in India, we test the predictions of the model and show that, in response to collective action by SHGs, local authorities tackle a larger variety of public issues, and are more likely to tackle issues of interest to SHGs.
JEL Classification: D70; G21; H42
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