Haughton and Khandker
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by raising consumption, but also by working (and earning) less, or by saving more, or by receiving less in transfers from family members or elsewhere. There is nothing wrong with these responses, but if the goal is to raise household consumption levels, then they make the government’s job harder, or at least more expensive.
How to Value Benefits The simplest way to “value” the benefits to households of a government program is to determine who participates in the program, without necessarily putting a monetary value on the benefits. So if, for instance, 30 percent of primary school children come from households in the poorest quintile, then we might argue that 30 percent of the benefits of primary school spending go to that quintile. The problem with the participation measure of benefits is that, in the absence of a monetary measure, it does not allow benefits from different programs to be aggregated. It also assumes that subsidies are the same for all participants, which implies, for instance, that a visit to an urban clinic costs the same to the government as a visit to a rural clinic. As a general proposition, this is implausible. The most common way to value the benefits of a government program is to use the cost of provision (“unit costs”). Thus, if a rural primary school costs $100 per pupil per year to run, this cost is used to measure the benefit for each household that sends a child to such a school. But this is defensible only under a number of stringent conditions, of which the most important are as follows: • The government must be efficient and honest. Otherwise some of the allocated spending, at least as measured at the central budgetary level, may be siphoned off before it gets to teachers and schools. The difficulty here is that the measured unit costs of provision are inflated. • The recipient values the benefits, on average, at the cost of provision. For instance, suppose a patient goes to a government-supported clinic to see a doctor. The patient must be willing to pay $10 for the (free) visit, but the cost of provision is $16. In this example, the use of unit costs will overstate the magnitude, and hence incidence, of the program’s benefits.
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An alternative is to ask people to put a value on services they receive from the government. Contingent valuation surveys may be designed for this purpose, and although they may not always elicit completely reliable answers, in some cases they are the only way to value benefits. Such surveys are widely used in evaluating the benefits from public goods, such as policing; or clean air, for which there is no direct market price; or for qualitative improvements, such as shorter waiting times at clinics. In some cases, it may be possible to estimate a demand curve for a publicly provided good—for instance, the demand for piped water in central Jakarta has