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Optimal Income Support Targeting


  • Stefan De Wachter
  • Sebastian Galiani


This paper considers the practical problem of distributing a fixed budget for poverty alleviation to a population whose poverty status is not directly observable. Some information on the relationship between poverty status and a number of observable and verifiable characteristics is assumed to be available in the form of a household survey. The solution we propose differs from other academic work in that it explicitly accounts for administrative constraints on the shape of the transfer function and is computationally more straightforward. It improves on the techniques that are commonly used in practice by taking both the concavity of the social welfare function and the entire conditional distribution of poverty status into account, and by endogenously determining the optimal transfer levels. Although the superiority of our allocation rule over other techniques is tautological, we explore the magnitude of the improvement in an artificial dataset. Finally, we provide an intuitive discussion of the defects of currently operational methods.

Suggested Citation

  • Stefan De Wachter & Sebastian Galiani, 2000. "Optimal Income Support Targeting," Economics Series Working Papers 41, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:41

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    References listed on IDEAS

    1. 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.
    2. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    3. Ravallion, Martin & Chao, Kalvin, 1989. "Targeted policies for poverty alleviation under imperfect information: Algorithms and applications," Journal of Policy Modeling, Elsevier, vol. 11(2), pages 213-224.
    4. Nichols, Albert L & Zeckhauser, Richard J, 1982. "Targeting Transfers through Restrictions on Recipients," American Economic Review, American Economic Association, vol. 72(2), pages 372-377, May.
    5. Kanbur, R. & Keen, M., 1988. "Poverty, Incentives And Linear Income Taxation," The Warwick Economics Research Paper Series (TWERPS) 298, University of Warwick, Department of Economics.
    6. Datt, Gaurav*Ravallion, Martin, 1990. "Regional disparities, targeting, and poverty in India," Policy Research Working Paper Series 375, The World Bank.
    7. Elbers, Chris & Lanjouw, Jean O. & Lanjouw, Peter, 2002. "Micro-level estimation of welfare," Policy Research Working Paper Series 2911, The World Bank.
    8. Hettich, Walter & Winer, Stanley L, 1988. "Economic and Political Foundations of Tax Structure," American Economic Review, American Economic Association, vol. 78(4), pages 701-712, September.
    9. Besley, Timothy J & Kanbur, S M Ravi, 1988. "Food Subsidies and Poverty Alleviation," Economic Journal, Royal Economic Society, vol. 98(392), pages 701-719, September.
    10. Andrew Chesher & Christian Schluter, 2002. "Welfare Measurement and Measurement Error," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 357-378.
    11. Ravallion, Martin & Sen, Binayak, 1994. "Impacts on rural poverty of land-based targeting: Further results for Bangladesh," World Development, Elsevier, vol. 22(6), pages 823-838, June.
    12. Glewwe, Paul, 1992. "Targeting assistance to the poor : Efficient allocation of transfers when household income is not observed," Journal of Development Economics, Elsevier, vol. 38(2), pages 297-321, April.
    13. Kanbur, Ravi & Keen, Michael & Tuomala, Matti, 1994. "Labor Supply and Targeting in Poverty Alleviation Programs," World Bank Economic Review, World Bank Group, vol. 8(2), pages 191-211, May.
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    Cited by:

    1. Galiani, Sebastian & McEwan, Patrick J., 2013. "The heterogeneous impact of conditional cash transfers," Journal of Public Economics, Elsevier, vol. 103(C), pages 85-96.
    2. repec:eee:joecag:v:9:y:2017:i:c:p:111-121 is not listed on IDEAS
    3. World Bank, 2001. "Household Risk, Self-Insurance and Coping Strategies in Urban Argentina," World Bank Other Operational Studies 15467, The World Bank.

    More about this item


    targeting; discriminant analysis; poverty;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics


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