Protecting Who ? Optimal Social Protection Responses to Shocks with Limited Information

The literature on shock-responsive social protection focuses on operational features thatimprove the speed and reach of the response, but little is known about the optimal design of emergency socialprotection responses in terms of which programs to use, information about the people affected, and the extent oftheir losses. This paper studies optimal social protection responses to shocks, using microsimulations of differentsocial assistance responses in Albania, Moldova, and North Macedonia. The paper shows that optimal design depends notonly on the magnitude of the shock, but also on how the shock affects welfare rankings and on the parameters of theexisting social assistance system, including the generosity of the schemes and how well they cover the poor. For givenbudgets, a universal transfer remains a suboptimal response. However, the extent to which existing programs should beexpanded, as designed, to additional beneficiaries depends on the type of shock. When a shock tends to affecthouseholds homogeneously, increasing generosity and expanding the existing targeted social assistance programusing established welfare metrics to assess eligibility is an effective response. When shocks affect householdsheterogeneously and bring some of them into extreme poverty, then pre-shock welfare indicators carry little informationand policy makers should provide support through a new program or modified eligibility criteria, according toinformation on who suffered the shock. This analysis points to the importance of planning in advance for future crisesand, within this, considering the optimal design of emergency social protection responses.