Background:

The Social Infrastructure Fund (FAIS), created since 1998, is a conditional transfer distributed by the Mexican federal government between state and municipal governments to reduce poverty. The assignation formula used until 2013, distributed the Fund according to the relative poverty of each state in relation to the national poverty. This design did not generate the appropriate incentives to reduce poverty.

Methods:

Based on a principal-agent model, and explicitly acknowledging the informational asymmetry between the federal and sub national levels of government, in this paper we propose a formula to assign the Fund, which has two fundamental characteristics: the FAIS is distributed using the relative poverty of states / municipalities; and includes a component to avoid the perverse incentive of the formula used until 2013.

Results:

A mechanism is designed and used as the theoretical basis to construct a formula to assign the transfer.

Conclusions:

In order to achieve the proposed impact of the governmental programs financed with federal transfers, it is important to design and implement the mechanisms to align the incentives of the different governmental levels.