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Game Theory

A Bird's Eye View Into the Mahatma Gandhi National Rural Employment Guarantee Act

Rumela Ghosh's picture

World Bank / Curt Carnemark
The 10th South Asian Economics Students Meet (SAESM) was held in Lahore, Pakistan, bringing together 82 top economics undergraduate students from the region. The theme was the Political Economy of South Asia, with a winning paper selected for each of the six sub-themes. In this post, Rumela Ghosh presents her winning paper on the political economy of social security. Posts from the other winning authors will follow over the next few weeks.


Employment is one of the burning problems affecting South Asia. India now has a diminished growth rate below 6% per year. In recent years although the living standards of the 'middle classes' have improved, reform for underprivileged groups has not been so exciting. According to National Service Scheme (NSS) data the average per capita expenditure rose at the exceedingly low rate of 1% per year in India. There has been a sharp decline in real agricultural wages also. A quantitative assessment of the impact of various rural wage employment schemes during the last two five-year plans and the current one shows that the results in terms of employment generated have been steadily decreasing.
 
My paper looked at schemes to tackle unemployment in India. A Bird's Eye View into Mahatma Gandhi National Rural Employment Guarantee Act firstly examines the Maharashtra Employment Guarantee Scheme (MEGS) introduced in the 1970s. It examines how at different time frames and contexts the elite managed to maintain their support base and reinforced its legitimacy by supporting a poverty alleviation program – the EGS. It also highlights the issue of gender concern and the problem of migrant workers.
 
Among various EGS, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is the flagship program implemented at the national level which achieved measurable success, though with some flaws. It guarantees every rural household up to 100 days of wage employment in a year within 15 days of demand for such employment. My study highlights the significant interstate differences in the supply of employment and tries to explore the reasons why. Supply falls far short of demand, particularly in low-income states, where the organizational capacity to implement the scheme is limited.

The paper examines the conceptual design and delivery of MGNREGA to assess its effectiveness against unemployment and poverty. I discuss existing labor laws applicable to workers in the unorganized sector covering wages, contract and poverty incidence. The paper also seeks to derive the short run and long run implications of a minimum wage law. A detailed empirical analysis of the spatial dimension of implementation, problems of funding, and budgetary incidence of MGNREGA.
 
A comparative study of MGNREGA scheme as implemented in Tamil Nadu where it is largely fair and corruption free with respect to that in Uttar Pradesh where the implementation has some serious flaws with corrupt practices of local officials paying wage payments to non-existing laborers has been illustrated. It studies the differences in utilization, extent of targeting, magnitude of income transfers and the cost-effectiveness of food subsidies.

I designed a game-theoretic model to design a near-perfect scheme with suggestions to eliminate the loop holes. Various falsified implementation strategies by contractors like fictitious names in muster rolls, commission to the contractor for partially/not working laborers has undermined the objectives of MGNREGA. This illegal money laundering from a subsidized scheme like MGNREGA digs a deep hole in India's economic pocket when the economy is reeling under inflation and rupee value depreciation pains. The model attempts a systematic game theory based solution approach for restricting these scheme implementation faults. A graphical presentation shows that, with such a policy laborers in the long run will have an incentive to deliver under MGNREGA only.

Corruption, Game Theory, and Rational Irrationality

Fumiko Nagano's picture

If we had to name one reason why petty corruption is so difficult to tackle, it has to be that it makes sense for people to engage in it than not. Unlike measures such as smoking bans, seatbelt laws, and drinking and driving laws where there is a clear individual benefit to those who do the “right thing,” corruption bans are hard to enforce because there aren’t easily discernible individual benefits to those who obey them. Rather, in countries where corruption is systemic, people who do what is right and follow whatever anti-corruption law might be in place will find themselves losing out to those who don’t.

In fact, with corruption, individual opinion doesn’t seem to matter much in one’s decision whether to engage in it. In theory, most people believe that corruption is wrong. But in practice, the incentive that motivates an individual’s behavior in a corruption-prone situation is their perception of what everyone else would do in a similar situation. Would your pregnant colleague pay a bribe so that she could jump the queue and get an H1N1 vaccination when the vaccines are in limited supply? Would your neighbor, an entrepreneur, slip a few notes to a civil servant under the table to expedite the process of obtaining a business license? If the answer to each of these questions is a “yes,” then why should you bother going against the system alone? Why should you do the right thing and find yourself at a disadvantage to everyone else who will do what it takes to obtain what they need given the environment and culture in which they live?