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Ordeal Mechanisms In Targeting: Theory And Evidence From A Field Experiment In Indonesia

  • Vivi Alatas
  • Abhijit Banerjee
  • Rema Hanna
  • Benjamin A. Olken
  • Ririn Purnamasari
  • Matthew Wai-Poi

Economic theory suggests that, when designing aid programs, ordeal mechanisms that impose differential costs for rich and poor can induce self-selection and hence improve targeting ("self-targeting"). We first re-examine this theory and show that ordeal mechanisms may actually have theoretically ambiguous effects on targeting: for example, time spent applying imposes a higher monetary cost on the rich, but may impose a higher utility cost on the poor. We then examine these issues empirically by conducting a 400-village field experiment within Indonesia's Conditional Cash Transfer program. Targeting in the program is usually conducted by automatically enrolling candidates who pass an asset test. We compare whether instituting an ordeal mechanism, where villagers come to a central application site to apply and take the asset test, improves targeting over the existing automatic enrollment system. Within self-targeting villages, we find that the poor are more likely to apply, even conditional on whether they would pass the asset test. On net, self-targeting villages have a much poorer group of beneficiaries than status quo villages. However, marginally increasing the ordeal does not necessarily improve targeting: while experimentally increasing the distance to the application site reduces the number of applicants, it screens out both rich and poor in roughly equal proportions. Estimating the model structurally, we show that only one would need to increase the ordeal dramatically (e.g. tripling wait times to 9 hours or more) to induce detectable additional selection. In short, ordeal mechanisms can induce self-selection, but marginally increasing the ordeal can impose additional costs on applicants without necessarily improving targeting.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19127.

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Date of creation: Jun 2013
Date of revision:
Handle: RePEc:nbr:nberwo:19127
Note: DEV PE
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  1. Cesar Martinelli & Susan W. Parker, 2006. "Deception and Misreporting in a Social Program," Working Papers 0602, Centro de Investigacion Economica, ITAM.
  2. Lise, Jeremy & Seitz, Shannon & Smith, Jeffrey A., 2003. "Equilibrium Policy Experiments and the Evaluation of Social Programs," IZA Discussion Papers 758, Institute for the Study of Labor (IZA).
  3. Vivi Alatas & Abhijit Banerjee & Rema Hanna & Benjamin A. Olken & Julia Tobias, 2012. "Targeting the Poor: Evidence from a Field Experiment in Indonesia," American Economic Review, American Economic Association, vol. 102(4), pages 1206-40, June.
  4. Nichols, D & Smolensky, E & Tideman, T N, 1971. "Discrimination by Waiting Time in Merit Goods," American Economic Review, American Economic Association, vol. 61(3), pages 312-23, June.
  5. David Coady & Susan Parker, 2009. "Targeting Social Transfers to the Poor in Mexico," IMF Working Papers 09/60, International Monetary Fund.
  6. Keane, Michael P. & Todd, Petra E. & Wolpin, Kenneth I., 2011. "The Structural Estimation of Behavioral Models: Discrete Choice Dynamic Programming Methods and Applications," Handbook of Labor Economics, Elsevier.
  7. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-61, March.
  8. Beth Osborne Daponte & Seth Sanders & Lowell Taylor, 1999. "Why Do Low-Income Households not Use Food Stamps? Evidence from an Experiment," Journal of Human Resources, University of Wisconsin Press, vol. 34(3), pages 612-628.
  9. Rebecca L. Thornton & Laurel E. Hatt & Erica M. Field & Mursaleena Islam & Freddy Solís Diaz & Martha Azucena González, 2010. "Social security health insurance for the informal sector in Nicaragua: a randomized evaluation," Health Economics, John Wiley & Sons, Ltd., vol. 19(S1), pages 181-206, September.
  10. Esther Duflo & Rema Hanna & Stephen P. Ryan, 2012. "Incentives Work: Getting Teachers to Come to School," American Economic Review, American Economic Association, vol. 102(4), pages 1241-78, June.
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