The economics of decentralized poverty–environment programs: An application for Lao PDR

Program administrators face difficult resource allocation decisions in programs that address multiple objectives in many regions. In developing countries, one main concern in multi-region programs is the tradeoff between poverty reduction and improvement of environmental quality. To provide a framework for analysis, we develop a model of optimal interregional budget allocation that allows for variations in three factors: administrators’ valuation of objectives; their willingness to accept tradeoffs among objectives and regional allotments; and regional administrative costs. We explore the implications of the model using provincial information for the Lao People's Democratic Republic. Our results highlight serious potential inconsistencies in conventional, non-optimizing strategies, which allocate resources using provincial poverty indicators alone.