A Mechanism Design for Participatory Rural Development Projects: An Application of Game Theory and Saemaul-Undong of Korea

Many rural development projects were unsuccessful due to lack of voluntary participation by recipient villagers. The objectives of this study are: 1) To provide a quantitative guideline on reward level to induce villagers’ participation, 2) To integrate the spirit of Self-Help and a competition process into the incentive mechanism design. It is found that such participatory mechanisms can be devised so that the outcome is in the Core. To achieve the objective, Mechanism Design is used and the derived conditions are: 1) The size of reward has to be greater than the relative size of cash and in-kind contribution to the size of monetary benefit, 2) The contribution ratio from villagers in cash or in-kind should not exceed 50%. A reward assignment table is proposed for easier application of the result in the field, along with recommended participation level of 20% implied by Nucleolus.