On the economics of integrated rural development

This paper provides a framework, based on analogies with private sector firms, which presents the principal reasons for and against integrating rural development agencies. Arguments in favor of integrated agencies include: (1) rural production inputs are naturally complementary; (2) economies can be achieved through combined production; (3) integration allows financial diversification; and (4) vertical integration reduces interagency transaction costs. Arguments against integration are that it entails both direct (financial) and indirect (managerial) costs, and that because integration is complex, the economies of specialization are lost. The framework also shows that integration creates a sort of monopoly, which can be good (e.g., can lead to increased bargaining power) or bad (can lead to corruption, politicization, and excessive expansion). A set of empirical questions is provided to help determine the strength of each argument (pro or con) in concrete circumstances. The author discusses limitations to the framework posed by the realities of public agencies in developing country rural areas, concluding that the benefits of integration will tend to be smaller, and the costs larger, than a model based on the private sector might suggest. A brief application of the framework to a rural family planning and health project concludes the paper. A four-page bibliography (1937-81) is appended.