survey (May – October 2009) and endline survey (May – October 2011) for the NSP impact evaluation, we estimate the following regression: where Ytvi is the outcome of interest for household _i_ in village _v_ in the midline (1) or endline (2) Survey t∈{1,2}, Tv is the village treatment dummy, τt is the dummy for _t_ , φp is the village-pair fixed effect, and εtvi is the error term. Thus, β1 corresponds to the impact of NSP at midline and β2 corresponds to the impact and endline. As in the main regressions, we include village-pair fixed effects and cluster standard errors at the village-cluster level.

The results of this analysis (see Table 8) indicate that NSP had no significant effect at the perceptions of local governance quality in the midline survey, at the time when newly elected councils were assigned the responsibility for managing development projects funded by NSP. However, there is strong evidence of a negative impact on perceptions of local governance at the time of the endline survey, which was conducted after the completion of development projects and at a point at which the role of the elected councils was more ambiguous.

It is feasible that the negative effect on perception-based measures might not reflect an actual worsening of government quality. Such changes could, for instance, be caused by a relaxation in cultural constraints to voicing dissatisfaction due to the increased involvement of villagers in local decision-making. Similarly, observations of the work of elected councils may have altered the basis against which customary leaders are evaluated. However, the results on embezzlement that are based on the comparison of allocated and received amounts of wheat are harder to reconcile with these explanations, suggesting the quality of governance did actually deteriorate in treatment villages over the course of the study.

NSP involves not only the creation of democratically elected councils, but also the provision of block grants to finance development projects. Thus, the observed difference between villages with customary governance structures and villages with elected councils may potentially be explained by the effects of the influx of resources provided by NSP, rather than by the differences in institutions. However, all the results are robust to controlling for measures that capture changes income, consumption, and assets that come as a result of the program (see Tables A3-A7). In addition, this explanation cannot explain the effects of making councils responsible for the aid distribution and for mandated female participation, since in this case we compare villages for which the amount of resources provided by NSP does not vary. Thus, the observed effects on governance quality are likely to be driven by the creation of councils, rather than by the provision of resources.

One important difference between customary leaders and elected council members is the difference in their time horizons as decision-makers (Olson, 2000). For customary leaders their position is usually life-long, so they are likely to have longer time-horizons than the members of the elected council, who hold this position only temporarily and do not have clear reelection incentives. A longer time-horizon is likely to put additional limits on rent-seeking behavior, which suggests that traditional leaders are less prone to corruption than members of the elected council. However, as long as elected councils makes traditional leaders less sure that they will retain their position in the future and, thus, shorten their time-horizon, we should observe more embezzlement in villages in which councils were created. Accordingly, while differences in time horizons of decision-makers can explain the negative indirect effect of council creation, they cannot explain the lack of any negative direct effect.

Improvements in targeting that come as a result of making the councils responsible for the food aid distribution may be driven by a reduction in shirking of the leaders responsible for food aid distribution.

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