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Cui Bono?

Measuring Income-Redistribution Effects of Capital Projects

Harvard University

Martin T. Katzman

University of Texas at Dallas

Evaluation of the income-redistributing performance of a capital project m the Third World produced evidence on four counts that the system was in fact operating to benefit rural and urban poor: (1) The management had attempted to reduce "hidden costs" otherwise borne by the poor by subsidizing the extension of services to outlying areas and by providing low-interest credit for household connections. (2) The poor were using the services as fully as well-to-do households were, the actual consumption being related significantly to family size and not income (3) The progressive rate struc ture used in the project bore more heavily on the rich than on the poor in general, though this "transfer effect" would have been greater if rates had combined a flat fee with a small surcharge based on the appraised value of the property. (4) A "critical incident" study of experience among users showed that all groups, regardless of ethnic origin, socioeconomic status, or location, perceived the project to be beneficial to the entire society, and especially to the rural poor. Information about these effects can be used by policymakers in international agencies for devising appropriate loan terms for utility-type projects It can also guide project managers in the design of rate structures, the setting of user charges, and the assignment of priorities for the future expansion of services.

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