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Please use this identifier to cite or link to this item: http://hdl.handle.net/2108/254

Title: Option values, switches and wages: an analysis of the employmentguarantee scheme in India
Authors: Scandizzo, Pasquale Lucio
Gaiha, Raghav
Imai, Katsushi
Keywords: options
uncertainty
entry and exit costs
incentives
Issue Date: Mar-2003
Publisher: CEIS
Series/Report no.: Quaderni CEIS; 189
Abstract: Consistent with the theory of real options, it is argued that the value of the Employment Guarantee Scheme (EGS) in the Indian state of Maharashtra and its impact on workers’ behaviour do not depend so much on its income supplementation as on enlargement of opportunities in an uncertain environment of the local labour market. The choice between the EGS and other activities in rural areas is modelled in a dynamic optimisation framework that takes into account a fixed wage rate and certainty of employment under the former and a stochastic wage rate in the latter. Besides, entry and exit costs of various employment options are taken into account. Finally, allowance is made for volatility of regular labour market activities (e.g. agricultural wage earnings). The predictions of this model are validated with the help of a panel household survey in a semi-arid region of south India. If this analysis has any validity, the incentive case for rural public works schemes such as the EGS in term...
URI: http://hdl.handle.net/2108/254
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