Public Good Provision in Indian Rural Areas

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.