Principal investigator: Eduarda Miller Figueiredo
Location of the Intervention: Indonesia
Sample Size: 400 villages
Sector: Income inequality
Primary Variable of Interest: Likelihood of enrollment in the program
Type of Intervention: Income Transfer Program
Methodology: Experimental Design
Will increasing the registration fee for income transfer programs discourage wealthy families from applying? This article aimed to answer this question through a randomization of registration methods in Indonesia's PKH Program. The results showed that there is greater participation of poor families in the program after the increase in the registration fee. Furthermore, the improvement in beneficiary targeting was due to the fact that wealthy individuals anticipated a low probability of success and chose not to apply. However, they emphasize that increasing the cost may not be the best way to conduct such screening.
- Policy Problem
Assistance programs need to separate the rich from the poor so that targeted aid is received by the individuals for whom the program was designed. Different programs employ different methods to achieve this separation: requirements involving manual labor, or even providing low-quality food that causes the wealthy to opt for higher-quality food instead of applying for the program. In other words, to discourage the wealthy from participating, the poor are forced to incur utility costs to receive the transfers.
Therefore, this article aims to determine whether, by reducing the costs for the poor to enter welfare programs, it is still possible to achieve substantial self-selection.
- Implementation and Evaluation Context
The Keluarga Harapan (PKH) Program is a conditional cash transfer program administered by the Ministry of Social Affairs (DepSos) in Indonesia. It is a self-selection program aimed at assisting families with per capita consumption below 80% of the poverty line, equivalent to the poorest 5% of the population studied. The program requires that the family have a pregnant woman and a child between 0-5 years old or a child under 18 who has not completed the 9th grade of compulsory schooling. Beneficiaries will receive between $67 and $250 per year, equivalent to approximately 3,5%-13% of the average annual consumption of the sample's poor families. These payments can last up to 6 years and are paid quarterly.
The determination of families below the minimum consumption required by the program occurs through tests with automatic screening for families that meet the demographic requirements. Thus, every 3 years, a survey is conducted of households that are potentially eligible for all poverty alleviation programs. Selected families go through two stages of questions, the first consisting of 5 questions for an initial screening, and after passing this screening, they receive approximately 30 questions about housing, property ownership, education, and occupation. The government then estimates the relationship between these variables and per capita household consumption to generate a district-level formula to predict the level of consumption. Thus, individuals below this consumption level are eligible for the program.
- Policy/Program Details
The study was conducted during the 2011 expansion of the PKH (Program for the Strengthening of Housing) to areas previously uncovered by the project. Six districts were chosen, allowing for the inclusion of a variety of different cultural and economic environments. Thus, 400 villages were randomly selected, 30% urban and 70% rural. Within these villages, one was selected. The villages contained approximately 150 families, each with its own administrative head. The authors experimentally varied the program enrollment process in these 400 villages, in which some enrolled through the procedure implemented by the government in other areas, and in others, the government's statistical system conducted a consumption test of potential beneficiaries in their homes and automatically enrolled those who passed. Therefore, the main difference studied was whether the family had to actively register to be selected for possible eligibility or whether they were automatically selected based on the results of the government survey.
From December 2010 to March 2011, baseline data was collected from a randomly selected village in each hamlet. Following this, the government conducted targeting treatments. Another survey was carried out in August 2011, the month in which the funds were distributed. And finally, the final survey took place from January to March 2012.
- Method
To re-examine self-selection in a welfare program based on the expected benefits and costs of enrollment, the authors assumed that families live for two periods and that their consumption equals their income.
Families' beliefs about eligibility for the program take the form probitThere are two types of families present in the sample:
- Poor families who are unaware of what the government observes, knowing the real empirical probability that someone with their level of consumption will receive the program.
- Wealthy families, who know more about the real rules the government uses.
Therefore, if the family is selected for the program, they will receive additional income in the future; if they are not selected, they will receive nothing.
The ratio of enrollment rates is always greater than 1 because wealthy people are less likely to enroll, given the higher costs and lower probability of receiving the benefit. Furthermore, the higher the ratio, the greater the proportion of poor people in the applicant population.
Making it more difficult to obtain benefits reduces the number of poor applicants and imposes excessive costs on all applicants, which is undesirable. Therefore, the only motivation for doing this is that it improves the ratio of poor to at-risk individuals, reducing the government program costs per eligible beneficiary.
- Main results
From the government's perspective, self-selection can have two effects:
- Selection of characteristics that are observable by the government: wealthy families, who are less likely to be selected for the PKH, may be less likely to apply. Thus, this type of selection could potentially reduce government administrative costs, since it would reduce the number of interviews for the program.
- Selection based on the unobservable component of consumption: households with higher unobservable consumption may be less likely to enroll. This could arise if there is self-selection based on the opportunity cost of time, or if households do not fully understand the scoring system.
Therefore, if selection is occurring in unobservables (ii), the introduction of autoselection has the potential to lead to a poorer distribution of beneficiaries than automatic selection.
When testing whether the types of individuals selected in self-selection and automatic screening – which is the usual procedure adopted by the Indonesian government – differ, they observed that the distribution of beneficiaries was poorer in the self-selection process. However, this result does not demonstrate whether this is due to the inclusion of poor families, the exclusion of wealthy families, or some combination of both factors. To answer this question, the authors used a non-parametric Fan regression of the probability of obtaining the benefit as a function of log per capita consumption. The results showed that it is a combination of both factors: poorer families are more likely to receive the benefit, while wealthier families are less likely to receive it.
After estimating various outcomes, controlling for several factors to resolve doubts about how the introduction of application costs could impact the selection of families for the PKH, the authors demonstrated that the improvement in the segmentation of program beneficiaries, after the imposition of the application cost, occurred because the wealthy predicted that they had a low probability of success and chose not to apply.
- Lessons in Public Policy
The study demonstrates that administrative costs can be an interesting tool to improve selection compared to automated screening. However, increasing costs may not be the best approach, as this administrative barrier is seen as yet another obstacle to overcome. Therefore, there is still a need to discover screening mechanisms to increase acceptance among the poor and discourage wealthy families from enrolling in such programs.
