Molly Lipscomb, University of Virginia

Maximizing the impact of aid — particularly in the presence of externalities — requires focusing benefits on those most likely to respond. We use mechanism design tools to provide a theory of targeting on observables, collect data to operationalize the solution, then test it in a randomized controlled trial. The treatment led to an increase in the market share of a socially beneficial good of 12.7 percentage points in the group likely to purchase the inferior product, 5.3 percentage points overall. We estimate and use a model of household behavior to compare alternative market designs, information structures, and market sustainability.