Equivalent allocation mechanisms? A field experiment in Malawi

Targeting public spending on difficult-to-observe characteristics often relies on self selection, which may be sensitive to the mechanism used for allocation. This paper directly compares two incentive compatible allocation mechanisms for tree cultivation subsidies in Malawi: a sealed bid, uniform price procurement auction and a take it or leave it price offer. At the contract price, the price offer elicits a higher supply of contracts, but of average lower quality: after six months, significantly fewer trees are alive under the posted price treatment. In spite of its relative complexity, the auction reveals more private information and results in superior self selection. ∗Helpful comments were received from Hunt Allcott, Nava Ashraf, Christopher Avery, Abhijit Banerjee, Rajeev Dehejia, Esther Duflo, Rema Hanna, Darby Jack, Seema Jayachandran, Steve Polasky, Joseph Shapiro, Robert Stavins, Tristan Zajonc, Richard Zeckhauser, and seminar participants at Harvard University, MIT, Tufts University, UC Santa Barbara, University of Maryland, University of Minnesota, University of Colorado, NEUDC and the 2010 ASSA meetings. Field work was facilitated by Brent Swallow, Olu Ajayi, Festus Akinnifesi, Stanley Mvula and Christopher Katema. Financial support was provided by the Sustainability Science Program, the Weatherhead Center for International Affairs, the Crump Fellowship, USAID, the EU, ICRAF and Ecobank Malawi. †Department of Economics, Tufts University, Braker Hall, Medford, MA 02155. Tel: (617) 595 3094. Fax: (617) 627 3917. Email: [email protected]. Financial support was provided by the Sustainability Science Program at Harvard University, the Weatherhead Center for International Affairs, the Crump Fellowship, USAID, ICRAF and Ecobank Malawi.