TY - JOUR AU - Olken,Benjamin A. AU - Onishi,Junko AU - Wong,Susan TI - Should Aid Reward Performance? Evidence from a Field Experiment on Health and Education in Indonesia JF - National Bureau of Economic Research Working Paper Series VL - No. 17892 PY - 2012 Y2 - March 2012 UR - http://www.nber.org/papers/w17892 L1 - http://www.nber.org/papers/w17892.pdf N1 - Author contact info: Benjamin A. Olken Department of Economics MIT 50 Memorial Drive Cambridge, MA 02142-1347 Tel: 617/588-1437 Fax: 617/868-2742 E-Mail: bolken@mit.edu Junko Onishi World Bank 1818 H Street, NW Washington, DC 20433 E-Mail: jonishi@worldbank.org Susan Wong World Bank 1818 H St, NW Washington, DC 20433 E-Mail: swong1@worldbank.org AB - 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. ER -