A big debate in the aid circles these days is whether conditioning financial support on performance actually improves performance relative to just providing resources (or even giving aid in the first place!). Though there has been a lot of discussion and debate about this issue, there have actually been few large scale evaluations of such programs, this paper being perhaps the best known exception.
New evidence – in the form of an NBER working paper – out of Indonesia, the country that some say every villager is studied and surveyed a few times a year, provides some more evidence that this appears to be the case. As I am working under a series of deadlines this week, I did not have time to give a deep review, so I will leave you with the abstract for you to decide for yourself.
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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.