A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Thakur, Ashutosh Working Paper Matching in the civil service: A market design approach to public administration and development ECONtribute Discussion Paper, No. 087 Provided in Cooperation with: Reinhard Selten Institute (RSI), University of Bonn and University of Cologne Suggested Citation: Thakur, Ashutosh (2021) : Matching in the civil service: A market design approach to public administration and development, ECONtribute Discussion Paper, No. 087, University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne This Version is available at: http://hdl.handle.net/10419/237332 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Using a matching theory perspective, I analyze the design and the impact of Indian Civil Service state assignment mechanisms used to allocate elite civil servants to different parts of the country. I find that a recent change in the matching mechanism in 2008 has systematically skewed assignments by assigning relatively poor quality bureaucrats to disadvantaged states: regions with external foreign conflict, states with internal political strife, and newly-formed states. This paper i) analyzes the causes of these imbalances, ii) assesses the impact of this mechanism change on state capacity, development outcomes, and bureaucratic performance, and iii) highlights trade-offs in implementing alternate mecha- nisms. Global balance in quality across state cadres is a unique constraint that arises when applying matching to political economy settings, as the mechanism designer is a paternal- istic central planner. Thus, less is left to the market compared to most canonical matching applications. On the other hand, the use of matching in political economy is also novel, and careful understanding of how different matching mechanisms address underlying correlations in the data has far-reaching consequences for bureaucratic performance and development outcomes. * A special thanks to Steven Callander, Alvin Roth, Paulo Somaini, Saumitra Jha, Fuhito Kojima, Carlos Varjao, Dinsha Mistree, Vatsalya Srivastava, Ilya Morozov, Ignacio Rios, Marcos Salgado, Nicholas Bloom, Ken Shotts, David Baron and participants and discussants at the Stanford Market Design Seminar, Quality of Governance Conference, Institutional and Organizational Economics Academy, Indira Gandhi Institute for Development Research, Empirical Management Conference, MATCH-UP, 23rd Annual Conference of Society for Institutional and Organizational Economics, POLMETH XXXVI, Harvard Business School, McCombs School of Business, Hong Kong Baptist University, NYU Abu Dhabi, and University of Cologne for their guidance and comments, and to Sharique Hasan and JP Ferguson for sharing their data from Ferguson and Hasan (2013). Thanks to Honorable Minister Prakash Javadekar and IAS officers Surendrakumar Bagde, Vijay Kumar, Alka Upadhyaya, Mandeep Bhandari, Abhishek Chandra, M. Saravanan, and Ashish More for their help and insights. I would also like to thank the Ronald I. McKinnon Memorial Fellowship (Center for Global Poverty and Development), the Center for South Asia Summer Research Fellowship, and Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) under Germany's Excellence Strategy { EXC 2126/1{ 390838866 for their generous support. A previous version of this paper has been circulated under the title Matching Problem of the Civil Service (2017). Ashutosh Thakur, Stanford Graduate School of Business and University of Cologne, [email protected]. 1 2 ASHUTOSH THAKUR 1. Introduction The Indian Administrative Service (IAS) is the topmost tier of the central government civil service. It administers a vast array of government operations at the state and federal levels from revenue collection and public welfare programs to public education and devel- opment schemes. Its importance is such that it is often referred to as the \Steel Frame of India." Critical to the success of the IAS is the quality of its officers who are only 5,000 in number and are endowed with enormous power and responsibility. Officers are allocated using a matching mechanism. Each IAS officer is assigned at the beginning of their career to a state (or small group of states). This is a lifelong appointment and officers spend a vast majority of their careers in this location. Not surprisingly, this generates strong preferences among the applicants over location, correlated around the most desirable and against the least desirable locations. The matching mechanism must sort between the applicants and their preferences. Moreover, the mechanism must also achieve the goals of the Indian government for the IAS, which themselves are considerable. The IAS, and the matching mechanism itself, has long been seen as an important tool to achieving national unity and well-balanced economics growth. Indeed, the Indian government has three stated objectives it aims to achieve with the mechanism. First, the government seeks a balance in quality, whereby talent is spread widely across the country. Second, affirmative action candidates must be distributed across states in proportions adhering to the national mandate. Third, while allowing for some home-preference for officers, excessive home bias must be avoided. Given the importance of this matching procedure, it is important to understand the outcomes produced by the matching mechanism and analyze whether the system delivers on its intended purpose. The mechanism is a structured allocation problem with well-defined constraints, and thus amenable to analysis using the tools of matching theory. These tools, however, have thus far not been used to analyze a problem of this sort. The quality balance constraint and the application of matching to such personnel allocation problems at the heart of public administration and development, are new to the study of matching and market design.1 The objective of this paper is a broad analysis of the performance of the IAS matching mechanisms. We analyze the problem using all aspects of matching: we analyze the new constraints theoretically, we empirically analyze the match itself and the performance of assigned officers, and from an engineering design perspective we explore alternative matching mechanisms that may perform better. The main empirical strategy is to exploit a change in the assignment mechanisms implemented in 2008. Using structural break, difference-in- difference, and instrumental variable approaches, we use this change to show the impact of the mechanism and its resulting effect on development outcomes and state capacity. Specifically, we show that the new mechanism systematically assigns officers with 114.8 lower exam ranks to disadvantaged states and this leads to a divergence of $206 million per year in tax revenues and 0.05 in Human Development Index across disadvantaged and advantaged states. If such imbalances are not addressed, vicious cycles can emerge: relatively higher 1Two recent papers Sonmez and Yenmez (2019a, 2019b) also discuss IAS state allocation procedures, along with many other allocation procedures used by the Indian government, but focus entirely on the issue of overlapping horizontal and vertical affirmative action constraints arising from recently added affirmative action categories and court decisions in India. MATCHING IN THE CIVIL SERVICE 3 quality civil servants avoid disadvantaged states, outcomes in these distressed areas further deteriorate, and the preference to avoid these regions is further reinforced. The IAS state cadre2 allocation process is transparent, algorithmic, and void of sub- jective internal evaluations or arbitrary political influence seen in subsequent transfer or promotion processes. Every year, the Union Public Service Commission (UPSC) holds a competitive Civil Services Examination3 to select candidates for these prestigious civil ser- vice positions, and makes lifelong appointments assigning many new recruits to different