To promote their objectives of decreasing current poverty and generating a
sustained decrease in poverty over time, the three programs have two key design features.
First, in order to ensure that transfers reach the poorest households, the programs use varying combinations of geographic, categorical, and proxy-means targeting methods.
Second, the transfers are conditioned on households undertaking certain actions intended to enhance the nutrition, health, and education outcomes of family members, particularly children. Both of these features require resources, thus increasing the share of
administrative costs in the program budgets and, consequently, the CTRs.
We assess the relative importance of the costs associated with these key activities by calculating their share in total program costs, after excluding the external evaluation and fixed costs described earlier. We assume that costs associated with the identification of beneficiaries are incurred only when household targeting is used—in the absence of household targeting, there is no operational need for the program to collect and analyze household information. While perhaps not entirely true, since even an untargeted program may require some sort of household registration system, we are implicitly assuming that any such related costs would be minimal. This would be the case, for example, if a reliable and recent census were already available. Similarly, if there were no conditioning, the program would not incur the costs of incorporating households or of certifying that beneficiaries are satisfying their responsibilities.
Table 5 presents the share of targeting and conditioning costs in total program costs for all three programs over the periods considered. Excluding external evaluation (the first column for each program), the proportions make clear that targeting and
conditioning costs are substantial. Combined, they account for 60, 49, and 31 percent for
PROGRESA, PRAF, and RPS, respectively. These shares increase modestly when we also exclude costs for program design in the share calculation (second column for each program). The relatively low percentage for the RPS pilot partly reflects the fact that setting up and implementing the supply side, an activity included in the “other” category in the table, has proved to be very resource intensive. The absence of these activities in PROGRESA increases the relative shares of targeting and conditioning costs. Targeting costs in PRAF are higher than they otherwise would have been, due to the difficulties in maintaining the beneficiary identification system. At the same time, the resources allocated to dealing with these problems appear to have come at the expense of monitoring conditionality, suggesting that the latter are smaller than would otherwise have been the case during a normal operating year. On balance, it is possible that the sum of the two activities is about right, though there is no way for us to be certain.
Nevertheless, even with these caveats, the message from this simulation is clear: costs devoted to targeting and conditioning form a substantial part of the ongoing operations of these programs. It is essential that these activities generate an adequate return; we turn now to an (admittedly crude) assessment of their cost-effectiveness.
Table 5—CTR-share of activities
PROGRESA PRAF Phase II RPS Pilot
Program activity
Targeting will be cost-effective if the incurred costs result in a sufficient increase in the share of transfers reaching the poorest households, thereby improving the
programs’ current poverty alleviation. The evidence indicates that the payoff from targeting has been high across all three programs. A comparative analysis (MNPTSG
2002) finds that the poorest 40 percent of households received 62, 79, and 80 percent of total transfers in PROGRESA, PRAF, and RPS, respectively. In other words, these relatively “poor” households receive from 1.5 to 2 times their population shares. To put this performance in perspective, for the more than 100 programs reviewed by Coady, Grosh, and Hoddinott (2002), the median targeting performance was consistent with 50 percent of program benefits accruing to the poorest 40 percent of the population (i.e., the poor receiving 1.25 times their population share). The three programs discussed here all ranked in the top third of those reviewed in Coady, Grosh, and Hoddinott (2002).
For two of the programs, PROGRESA and RPS, the human capital impacts have also been substantial (Skoufias 2004; Maluccio and Flores 2004). For education, the main effect of PROGRESA was to increase enrollment rates in secondary school (Schultz 2000; Behrman, Sengupta, and Todd 2001). Among those who successfully completed primary school, the program increased enrollment rates in the first year of middle school by 15 percentage points for girls and 7 percentage points for boys. In the RPS, primary enrollment rates in Grades 1–4 were about 70 percent before the program and increased a massive 18 percentage points with the program (Maluccio and Flores 2004).
The effects on nutrition were also substantial. In PROGRESA, prior to the program, stunting levels for children aged 12–36 months were very high, at 44 percent.
The program had a substantial effect on reducing the probability of stunting, increasing the annual mean growth rate by 16 percent (or 1 centimeter per year) for these children (Behrman and Hoddinott 2000; Gertler 2000). There is also evidence of a substantial increase in food consumption and dietary diversity (Hoddinott and Skoufias 2003). RPS has also had an enormous impact on a range of health and nutrition indicators. The percentage of children under age 3 who were weighed in the past six months increased by 30 percentage points, from around 60 percent prior to the program. This was
accompanied by a decline of six percentage points in the prevalence of stunting for those under 5 (from 42 percent before the program), an unprecedented decline in such a short period of time. The results on expenditures suggest that not only have the total
expenditures on food increased, but so, too, has the food budget share, by nearly four
percentage points. The program has had a beneficial impact on dietary diversity; both the number of different food items consumed and the nutritional quality of the diet improved, with households eating more meat, fats, and fruits (Maluccio and Flores 2004).
Preliminary evidence regarding the human capital impacts of PRAF suggests that these are smaller than for the other two programs (IFPRI 2003). For example, it appears to have had little impact on primary enrollment rates (which were already quite high), although there was an improvement in dropout rates. Visits by children to health clinics for growth monitoring and vaccinations increased in areas with the demand-side program, but the program does not appear to have improved health outcomes. Nor was there any effect on the nutritional status of children as measured by child growth indicators. These small effects are consistent with the evidence of operational difficulties in terms of implementing the supply side and monitoring conditionality. These results reinforce concerns that the low CTR of PRAF comes at the expense of the program’s overall effectiveness. Possibly more important, however, we must bear in mind that these relatively small effects reflect not only the operational difficulties encountered in PRAF, but also the lower transfer level per household compared to the other programs—in PRAF, the transfer was calculated as an amount to compensate for the opportunity cost of children attending school, and was therefore much smaller than the other programs.