7.9 Relative Efficiency of Programs

Measuring the Performance of Targeting Methods | 481

benefits are too small to improve the household welfare of the desired population. • Ineffective in absolute terms because the benefits reach a significant share of the nondesired population, but effective in relative terms as the benefits suffice to improve the household welfare of the desired population.

Table 7.9 illustrates this case for the poorest 20 percent in the 10-person economy, focusing only on scenarios 2 and 4 benchmarked at the poorest 20 percent. As the budget that was allocated was $30, scenario 2 implies a transfer of $15 per person, while scenario 4 implies a transfer of $3 per person. Scenario 4 is effective in absolute terms as all poor people are beneficiaries (coverage of the desired population is 100 percent). However, the $3 transfer is insufficient to bring a single individual above the poverty line, as presented in the row income after transfer. In contrast, scenario 2 has 50 percent coverage of the desired population as the benefit reaches a nondesired case, individual 3. So, scenario 2 has certain inefficiency in absolute terms, but it is effective in relative terms as the selected poor recipient (individual 2) got a benefit that allowed crossing the poverty line (the formula is provided in annex 7A).

3. It is preferable to consider a program’s performance over the whole welfare distribution.

A significant weakness/bias when assessing performance with only errors of inclusion/exclusion or indices derived from those is not accounting for how close or far above or below people are from a given benchmark, as was

Table 7.9 Relative Efficiency of Programs

Person 1 2 3 4 5 6 7 8 9 10 Total

Observed income ($) 6 8 11 15 21 25 30 40 50 100 306

Income gap ($) 14 12 9 5 0 0 0 0 0 0 40

Transfer scenario 2 ($) 0 15 15 0 0 0 0 0 0 0 30

Income after transfer ($) 6 23 26 15 21 25 30 40 50 100 336

Transfer scenario 4 ($) 3 3 3 3 3 3 3 3 3 3 30

Income after transfer ($) 9 11 14 18 24 28 33 43 53 103 336 Source: Original compilation for this publication.