When your neighbour is the village cadre: allocation of public resources in the social network

As a key node in the social network, political elites play an important role in the allocation of public resources in developing countries, and they may bring benefits to their neighbours. China's large-scale poverty alleviation efforts, as well as the nature of China as an acquaintance society, provides us with an opportunity to examine this issue. By using a novel panel of data from a village in China, our results show that households connected to village cadres are more likely to become beneficiaries of poverty alleviation projects than those not connected – the closer the social relationship with village cadres, the greater the benefits. Both favouritism and information transmission are proven to be mechanisms of the connection effect. As such, closely connected networks within communities are conducive to improving the targeting efficiency of public welfare projects, and external supervision is essential for eliminating the favouritism of political elites.