Incentivized aid?

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 provinces, but found no impact of incentives on education. We find no evidence of negative spillovers from the incentives on untargeted outcomes.

Incentives led to what appear to be more efficient use 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.

A new paper from Olken, Onishi and Wong.

2 thoughts on “Incentivized aid?

  1. Not a surprise: private sector workers can be incentivized to perform; public sector, not so much.
    The findings confirm an important context factor for such incentive schemes to work: the ability to “incentivize” the key worker involved in providing the service.
    Most of the “pay for performance” or “results based finance” schemes that work involve private service providers – whose employment arrangements enable these incentive schemes to work (as with the midwives in this study). Commonly, when applied to publicly provided serivces the schemes don’t work – because public employees employment arrangements are typically too rigid and the culture of low discipline and norms of low attendance and low effort are deeply intertwined with the interpersonal relationships involved in service provision (as with the teachers in this study).
    I wish more studies (and practioners) would make sure to distinguish when such schemes rely on changed behavior of public vs private actors.
    It is unfortunately very common for the positive findings from interventions incentivizing private actors to be interpreted as suggesting the schemes can work with public actors. And consistently, studies like this one suggest that is not the case.

  2. That makes sense — we know what to do with regard to public health, but no one knows how to make education work better. So incentivizing education is a lot like incentivizing people flying by flapping their arms.