Target What? The Foundations of Poverty Targeting

Most government transfer programs aim to target the poor. Doing so implicitly assumes that the lowest-consumption households have the highest marginal social valuation, i.e., have the highest social welfare gain from an additional dollar. But this need not be the case. In 600 Indonesian villages, we ask over 5,500 villagers to rank other villagers on how well off they are and how much a modest cash transfer would help them, and compare these rankings to consumption and self-assessed welfare. Targeting consumption misses 77% of households with the highest marginal social valuation. Targeting self-assessed welfare misses 57%. Even targeting those the community ranks worst off in levels, not margins, misses 25%. Divergences between different notions of neediness are statistically predictable. In a randomized controlled trial, proxy means tests best target consumption, self-targeting ordeals capture self-assessed welfare levels, and community targeting comes closest to marginal social valuation. Targeting strategies inescapably embed normative stances.