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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.

Suggested Citation

  • Benjamin A. Olken & Junko Onishi & Susan Wong, 2012. "Should Aid Reward Performance? Evidence from a Field Experiment on Health and Education in Indonesia," NBER Working Papers 17892, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17892
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    References listed on IDEAS

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    3. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-475, March.
    4. Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 433-446.
    5. Sarah Baird & Craig McIntosh & Berk Özler, 2011. "Cash or Condition? Evidence from a Cash Transfer Experiment," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1709-1753.
    6. Paul Schultz, T., 2004. "School subsidies for the poor: evaluating the Mexican Progresa poverty program," Journal of Development Economics, Elsevier, vol. 74(1), pages 199-250, June.
    7. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-138, March.
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    Cited by:

    1. Nancy Qian, 2015. "Making Progress on Foreign Aid," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 277-308, August.
    2. Elise Huillery & Juliette Seban, 2014. "Performance-Based Financing, Motivation and Final Output in the Health Sector: Experimental Evidence from the Democratic Republic of Congo," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01071880, HAL.
    3. de Walque, Damien & Gertler, Paul J. & Bautista-Arredondo, Sergio & Kwan, Ada & Vermeersch, Christel & de Dieu Bizimana, Jean & Binagwaho, Agnès & Condo, Jeanine, 2015. "Using provider performance incentives to increase HIV testing and counseling services in Rwanda," Journal of Health Economics, Elsevier, vol. 40(C), pages 1-9.
    4. Kusuma, Dian & Cohen, Jessica & McConnell, Margaret & Berman, Peter, 2016. "Can cash transfers improve determinants of maternal mortality? Evidence from the household and community programs in Indonesia," Social Science & Medicine, Elsevier, vol. 163(C), pages 10-20.
    5. Elise Huillery & Juliette Seban, 2014. "Performance-Based Financing, Motivation and Final Output in the Health Sector: Experimental Evidence from the Democratic Republic of Congo," Working Papers hal-01071880, HAL.
    6. Khemani, Stuti, 2013. "Buying votes vs. supplying public services : political incentives to under-invest in pro-poor policies," Policy Research Working Paper Series 6339, The World Bank.

    More about this item

    JEL classification:

    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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