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Should Aid Reward Performance? Evidence from a Field Experiment on Health and Education in Indonesia

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  • Benjamin A. Olken
  • Junko Onishi
  • Susan Wong

Abstract

This paper reports an experiment in over 3,000 Indonesian villages designed to test the role of performance incentives in improving the efficacy of aid programs. Villages in a randomly-chosen one-third of subdistricts received a block grant to improve 12 maternal and child health and education indicators, with the size of the subsequent year’s block grant depending on performance relative to other villages in the subdistrict. Villages in remaining subdistricts were randomly assigned to either an otherwise identical block grant program with no financial link to performance, or to a pure control group. We find that the incentivized villages performed better on health than the non-incentivized villages, particularly in less developed areas, but found no impact of incentives on education. We find no evidence of negative spillovers from the incentives to untargeted outcomes, and no evidence that villagers manipulated scores. The relative performance design was crucial in ensuring that incentives did not result in a net transfer of funds toward richer areas. Incentives led to what appear to be more efficient spending of block grants, and led to an increase in labor from health providers, who are partially paid fee-for-service, but not teachers. On net, between 50-75% of the total impact of the block grant program on health indicators can be attributed to the performance incentives.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17892.

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Date of creation: Mar 2012
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Publication status: published as “Should Aid Reward Performance? Evidence from a field experiment on health and education in Indonesia” (with Junko Onishi and Susan Wong). American Economic Journal: Applied Economics, forthcoming.
Handle: RePEc:nbr:nberwo:17892

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Cited by:
  1. Khemani, Stuti, 2013. "Buying votes vs. supplying public services : political incentives to under-invest in pro-poor policies," Policy Research Working Paper Series, The World Bank 6339, The World Bank.
  2. de Walque, Damien & Gertler, Paul J & Bautista-Arredondo, Sergio & Kwan, Ada & Vermeersch, Christel & de Dieu Bizimana, Jean & Binagwaho, Agnes & Condo, Jeanine, 2013. "Using provider performance incentives to increase HIV testing and counseling services in Rwanda," Policy Research Working Paper Series, The World Bank 6364, The World Bank.

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