Aqueue tells us a lot. A long line outside a film theatre or a cricket stadium is an indication that the tickets are being sold too cheap. The economic failures of the Soviet Union were evident in the winding lines outside stores even though the official statistics pretended that the onward march of Communism was unstoppable. Queues are an indication that the pricing decisions made by companies or governments are incorrect.
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But some queues are inevitable, because governments, the world over, try to sell essentials at below market prices to the poor as part of their social security systems. There have been experiments in countries such as Brazil and Mexico to give cash to the poor rather than specific goods, letting the beneficiaries buy what they want to. The idea is gaining traction, but is still not widely used.
One way to observe how quickly queues form is to stand outside a ration shop in your locality. The availability of food and other basic provisions at below market rates is an important reason why people line up for long periods of time to buy stuff cheap, though the number of ration shops per family and the efficiency of the staff are also factors to consider. The savings from buying at a ration shop rather than from the market release money to buy other things that poor families would otherwise have not been able to buy—the income effect.
As the nationwide debate on food security heats up, some economists believe that the queues outside ration shops and the location of these outlets could be used as a strategic tool to ensure that only the deserving get access to cheap food. A rich family would not find it worth its while to save a bit of money when the opportunity cost of standing in a long queue is very high. Another thing that would keep rich families away from ration shops is the fear that being seen in a queue to buy subsidized food would be a signal to neighbours that all is not well. Critics of this view offer the simple counter-argument that you can always ask the maid or driver to stand instead of you.
A government usually has two alternatives when designing social interventions. One, it can decide to offer subsidies to all citizens, rich and poor. Two, it may decide to restrict access to the deserving through specific methods to identify the poor. The first option increases the subsidy bill because of its universal coverage. The second option of targeting opens the door for corruption by creating incentives for the undeserving to bribe their way into a list of beneficiaries. You see both these options discussed in the current debates on food security.
The subject of queues throws light on a third option: self-targeting. A government can do things that ensure that only the poor find it meaningful to ask for subsidies. The rich stay away. The basic idea is to keep the benefits to a minimum while raising the costs of applying for benefits.
The Mahatma Gandhi National Rural Employment Guarantee Scheme is based on self-targeting. Only the desperately poor would be ready to do back-breaking work through the day for a minimal payment. To be sure, self-targeting is not perfect because it does not eliminate the problem of exclusion. The Indian government’s flagship jobs programme may be designed to keep away the better off; but it also keeps away the infirm, sick and aged.
The use of long queues is one way to ensure that only the poor get cheap food, although it is technically available to all citizens. Another option is to offer goods of relatively inferior quality that only the poor would be ready to consume, or choose goods that only the poor consume. Kerosene is one example. Offering goods preferred by the poor is progressive since the proportion of income that the poor spend on these basic goods is very high.
All subsidies have their downsides. Cheap kerosene encourages vehicle owners to use it as fuel, damaging both their engines and the quality of air in cities. Poultry owners have been known to feed wheat to their hens because it is sold so cheap in ration shops. The effect of free power on underground water resources is well documented; farmers with free power have every incentive to keep their pumps running through the day.
On 18 May, this column had argued that the government should bring in behavioural economists to help it think through various policy options. Other governments have already begun to do so. On the same lines, we need to bring the insights of microeconomics into public policy debates, so that adequate importance is given to the behaviour of individuals who are supposed to be the beneficiaries of various government programmes.
Niranjan Rajadhyaksha is executive editor of Mint. Comments are welcome at firstname.lastname@example.org