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Are the Welfare Losses from Imperfect Targeting Important?

  • EMMANUEL SKOUFIAS
  • DAVID P. COADY

We quantify and compare the size of the welfare losses arising from the use of alternative 'imperfect' welfare indicators as substitutes for the conventionally preferred consumption indicator. We find that the size of the welfare losses associated with different indicators varies considerably. An asset-based index and the share of food as targeting indicators were found to have the highest welfare losses relative to all other targeting indicators examined. Our preferred welfare index implies that the losses from the two best targeting indicators (i.e. reported expenditures and reported income) are statistically significant but very low (less than 5%). Copyright (c) The London School of Economics and Political Science 2007.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 74 (2007)
Issue (Month): 296 (November)
Pages: 756-776

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Handle: RePEc:bla:econom:v:74:y:2007:i:296:p:756-776
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  1. Angus Deaton & Salman Zaidi, 2002. "Guidelines for Constructing Consumption Aggregates for Welfare Analysis," World Bank Publications, The World Bank, number 14101.
  2. Subramanian, Shankar & Deaton, Angus, 1996. "The Demand for Food and Calories," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 133-62, February.
  3. Bouis, Howarth E., 1994. "Agricultural technology and food policy to combat iron deficiency in developing countries," FCND discussion papers 1, International Food Policy Research Institute (IFPRI).
  4. Ravallion, M., 1992. "Poverty Comparisons - A Guide to Concepts and Methods," Papers 88, World Bank - Living Standards Measurement.
  5. Ravallion, Martin, 1989. "Land-contingent poverty alleviation schemes," World Development, Elsevier, vol. 17(8), pages 1223-1233, August.
  6. Giovanni Andrea Cornia & Frances Stewart, 1993. "Two Errors of Targeting," Papers iopeps93/54, Innocenti Occasional Papers, Economic Policy Series.
  7. Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521397421.
  8. Glewwe, Paul & van der Gaag, Jacques, 1990. "Identifying the poor in developing countries: Do different definitions matter?," World Development, Elsevier, vol. 18(6), pages 803-814, June.
  9. Dreze, Jean & Stern, Nicholas, 1987. "The theory of cost-benefit analysis," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 14, pages 909-989 Elsevier.
  10. Chaudhuri, Shubham & Ravallion, Martin, 1994. "How well do static indicators identify the chronically poor?," Journal of Public Economics, Elsevier, vol. 53(3), pages 367-394, March.
  11. Behrman, Jere R. & Deolalikar, Anil B., 1988. "Health and nutrition," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 14, pages 631-711 Elsevier.
  12. Schady, Norbert R, 2002. "Picking the Poor: Indicators for Geographic Targeting in Peru," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(3), pages 417-33, September.
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