Florian Blum

I am a Senior Economist in the World Bank's Macroeconomics, Trade and Investment Global Practice.

Before joining the World Bank I completed a PhD in Economics at the London School of Economics.

Technical Areas of Interest:

Fiscal Policy, Public Economics, Fiscal Decentralization, Service Delivery

Contact Details:

Email: fblum [at] worldbank.org

Tel: +1 (202) 823 5694

Publications

The Value of Discretion: Price-Caps and Public Service Delivery

Journal of Development Economics, Volume 146, September 2020, Article Number: 102521. Link to published version.

It is often argued that price-caps – a ceiling on prices charged by monopolistic suppliers - are necessary to redistribute surplus and make essential goods and services affordable. I explore whether price-caps lead to welfare improvements through a field experiment in which I randomize whether public livestock extension agents are subject to a price-cap or not. This intervention has three effects. First, conditional on being served, the treatment increases the consumer surplus available to recipients: the price-cap reduces average prices by 17% and the within-agent standard deviation of prices by 42%. Second, the intervention increases the affordability of extension services: the price-cap increases the share of previously unserved and needy customers in the beneficiary pool by 15% and 9%, respectively. Third, the price-cap reduces the geographic coverage of services by decreasing the likelihood that agents will serve remote villages by 25%. This suggests that price-cap regulation creates a tension between making services affordable and providing incentives for agents to serve remote recipients. In light of this trade-off, I show that the marginal welfare effect of reducing discretion over prices can be expressed as a function of two sufficient statistics: the elasticity of geographic service coverage with respect to the price-cap and the price elasticity of demand. Calculating the welfare effects, I find that any reduction of agents’ discretion reduces social welfare.

Research Papers

Fixed Fee Contracts in Practice: Experimental Evidence from Tanzania

In contexts where the verification of effort is difficult, principals often rely on contracts that charge agents a fixed fee for the usage of an asset and in return make them residual claimants on all profits derived from the asset. Such contracts are desirable on a theoretical level because rational agents that treat the fixed fee as sunk will maximize their effort when using the assets, thus minimizing moral hazard, while the fixed fee allows the principal to extract the arising surplus. I investigate whether this prediction holds in practice by evaluating whether imposing lump-sum fees on livestock extension agents distorts their choices. Using a field experiment, I first show that, contrary to theoretical prediction, levying a fixed fee on agents leads them to increase user fees for a livestock vaccine and induces demand effects that reduce quantities. To understand the mechanisms underlying this result, I implement a series of lab-in-the-field experiments with a subset of the field-experimental participants. The results suggest that instead of setting prices for user fees as mark-ups over marginal costs, agents use simplified rules-of-thumb that anchor pricing decisions on aggregate profits. The results highlight that boundedly rational behavior can reduce the effectiveness of adopting fixed fee contracts.

Priming the Pump: Irrigation, Nutrition and Agricultural Productivity (manuscript available upon request)

Attempts to improve agricultural production technology are a common response to undernutrition. In India, groundwater irrigation using tube wells has long been promoted as a means to reduce rainfall-dependence and enhance food security. The merits of adopting tube wells have been debated widely, however, with opponents fearing a deprivation of smaller farmers and impoverishment of rural laborers. To evaluate the causal effects of tube well adoption on nutrition, I employ an instrumental variable framework that exploits variation in land suitability for deep groundwater irrigation caused by differences in hydrogeological structures. I find that groundwater irrigation significantly improves nutrition across the income spectrum: a one standard deviation increase in the proportion of cropped area irrigated with tube wells increases calorie intake by 770 to 915 calories per day. In addition, groundwater irrigation generates positive spillovers on the calorie intake of urban populations and households not employed in agriculture. I present additional evidence which suggests that these effects are driven by increases in agricultural productivity that reduce staple prices and raise wage rates. The findings thus highlight the value of groundwater irrigation in fighting undernutrition and promoting agricultural development.