General Equilibrium Program Evaluation Gap in Scaled Interventions
RCTClinical Trial
Standard micro-level program evaluations measure treatment effects strictly on targeted beneficiaries, failing to account for market price adjustments. When interventions are scaled up, aggregate general equilibrium price shifts can generate spillovers that alter or reverse net welfare impacts for non-treated populations.
Picture this
Imagine giving discount grocery vouchers to half the families in an isolated village. A standard test only checks if those receiving vouchers eat better, but when half the village uses vouchers to buy more food, the local store owner raises prices for everyone. As a result, families without vouchers are left worse off because food costs more than before, an unintended consequence missed if price changes are ignored.
What the evidence says
Marketing insurance exclusively to cultivators reduces drought wages for landless laborers by 0.63 log points at the 30th percentile of rainfall, demonstrating that partial-equilibrium evaluations miss severe welfare losses among non-treated groups.
- Who was studied
- 4,706 landless agricultural wage workers and 1,585 cultivating households across 63 rural Indian villages.
- How
- Clustered RCT evaluating market-level wage spillovers by randomizing insurance offer intensity across village labor markets.
What to do
Incorporate general equilibrium market price and wage estimations into program evaluation designs before scaling social or financial interventions.
From the source
"To properly evaluate the welfare effects of introducing a formal insurance product in a developing country, it is important to move beyond effects on the treated population, and determine the general-equilibrium effects on both wage levels and the sensitivity of wages to rainfall variability."
Risk, Insurance and Wages in General Equilibrium