Public Good Provision in Indian Rural Areas

Abstract

Self-help groups (SHGs) are the most
 common form of microfinance in India. The authors provide
 evidence that SHGs, composed of women only, undertake
 collective actions for the provision of public goods within
 village communities. Using a theoretical model, this paper
 shows that an elected official, whose aim is to maximize
 re-election chances, exerts 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 substitutes in the
 technology of providing public goods. Using first-hand data
 on SHGs in India, the paper tests the prediction of the
 model and shows 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. The findings highlight how the social behavior of SHGs
 can influence the governance of rural Indian communities.