Economic Issue of the Day
Philippine Institute for Development Studies S u r i a n s a m g a Pa g -a a ral Pangkaunlaran ng Pilipinas
Vo l . V I I N o . 4 ( J u l y 2 0 0 7 )
Targeting: reaching the poor
T
argeting is a tool used to select eligible beneficiaries of any social assistance/safety net program. Since the poor is at the heart of such government intervention, it is important for any targeting mechanism to correctly identify poor households or individuals. Targeting is meant to ensure maximum coverage of the poor and at best, increase the benefits that go to them given limited fiscal resources. It is also intended to reduce the budget requirement of the program while maintaining the same level of benefits that accrue to the poor (Box 1). Targeting mechanisms are classified into self-targeting and administrative targeting. Under self-targeting, the poor people enroll themselves as beneficiaries of a particular program. In contrast, under administrative targeting, the project staff determine who are eligible to participate based on a set of criteria. Different targeting mechanisms fall under the administrative targeting category. They vary depending on the method or approach used to reach the target population. To wit, z Verified means test seeks to gather complete information on households (e.g., income and/wealth) and verifies the information collected against independent sources. Eligibility is based on household income. z Proxy mean test generates a score for applicant households based on fairly easy-to-observe household characteristics (e.g., location and quality of dwelling, ownership of durable goods, demographic structure, education and occupation of household members). A household’s score is then compared against a predetermined cut-off to determine whether it is eligible or not. z Community-based targeting uses a group of community members/leaders to decide who in the community should participate in the program. z Categorical or indicator targeting automatically enrolls to the program all individuals in a specified category (e.g., age, gender, ethnicity, demographic composition or geographic location).
Box 1. Why targeting matters: Illustrative example Total Population Poor Population
100 50
Higher per capita transfer with fixed budget (say, PhP1,000) With perfect targeting: PhP20 benefit per beneficiary With no targeting: PhP10 benefit per beneficiary Smaller budget with fixed per capita transfer to the poor (say, PhP 10) With perfect targeting: PhP500 (50% budget savings) With no targeting: PhP1,000
Among the government programs that employ narrow targeting are food-based transfers (e.g., supplementary feeding programs (SFPs), food stamps/vouchers/coupons, food-forwork/school program), means-tested social assistance, microcredit targeted to rural women, and programs focused on poor geographical areas. Ideally, these targeting mechanisms should concentrate the benefits of the government program to the poorest segments of the population. However, errors of inclusion or exclusion are quite inevitable. Error of inclusion occurs when unintended individuals or households get to the roster of beneficiaries. It may be due to faulty project design or implementation or at worse, due to vested interest of some individuals or political parties. On the other hand, error of exclusion occurs when deserving individuals or households are missed out, not permitted or not able to participate in the program. It may be attributed to factors such as lack of knowledge of the existence of the program, some constraints (e.g., catastrophic illness or sudden death) that hinder eligible households to participate, and household decision not to participate because the benefits do not compensate for the costs (e.g., cost of transport) involved in their participation. In addition, both errors are affected by the indicators used for screening the participants as well as the resources available to fund the intervention.
Economic Issue of the Day
TARGETING
Vo l . V I I N o . 4 ( J u l y 2 0 0 7 )
A targeting mechanism can be assessed by estimating the leakage rate (i.e., measure of the inclusion error) and undercoverage rate (i.e., measure of the exclusion error). The leakage rate is the ratio of the number of nonpoor households included in the program to the total number of beneficiaries. On the other hand, undercoverage rate is the ratio of the number of poor households that should be beneficiaries but are not, to the total number of poor households. An illustration is given in Table 1. At best, errors of inclusion and exclusion under perfect targeting are zero and so are the leakage and undercoverage rates (Table 2). However, this is not easy and almost impossible to achieve primarily because of the difficulty in acquiring accurate information (e.g., data on income and wealth) about the prospective beneficiaries of the program, not to mention the administrative cost associated with it. Nevertheless, these errors can be minimized, if not totally eliminated. It is possible by finetuning the targeting methods. This, however, would imply higher costs. Consequently, the program budget shrinks and so does the benefit that goes to the beneficiaries. Thus, implementing finer targeting methods is desirable only when the benefits from reduced leakage and undercoverage outweigh the cost of doing so. N
Table 1. Errors of inclusion and exclusion Poor (a)
Nonpoor (b)
Total (c)
Leakage Rate (b)/(c)
0.31
Participate in intervention (d)
Success 45
Inclusion error 20
65
Do not participate (e)
Exclusion Error 15
Success 20
35
60
40
Total (f) Undercoverage rate (e)/(f)
100
0.25
Table 2. Errors of inclusion and exclusion under perfect targeting Poor (a)
Nonpoor (b)
Total (c)
Participate in intervention (d)
Success 60
Inclusion error 0
60
Do not participate (e)
Exclusion Error 0
Success 40
40
60
40
Total (f) Undercoverage rate (e)/(f)
Leakage Rate (b)/(c)
0
100
0
References Hoddinott, John. 1999. Targeting: Principles and practice. Washington, D.C.: International Food Policy Research Institute. Manasan, Rosario G. 2007. Who benefits from the Food-for-School Program: Lessons in targeting. Philippine Institute for Development Studies. Forthcoming.
The Economic Issue of the Day is one of a series of PIDS efforts to help in enlightening the public and other interested parties on the concepts behind certain economic issues. This dissemination outlet aims to define and explain, in simple and easy-to-understand terms, basic concepts as they relate to current and everyday economics-related matters. This Issue was written by Janet S. Cuenca, Supervising Research Specialist at the Institute. She acknowledges the comments of Dr. Rosario G. Manasan, Senior Research Fellow at PIDS. The views expressed are those of the author and do not necessarily reflect those of PIDS and other member agencies and sponsors. N Philippine Institute for Development Studies NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, Makati City z Telephone Nos: (63-2) 8942584 and (63-2) 8935705 z Fax Nos: (632) 8939589 and (63-2) 8161091 URL: http://www.pids.gov.ph