Should Aid Reward Performance? Evidence from a Field Experiment on Health and Education in Indonesia
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.
We thank the members of the PNPM Generasi Team including: Sadwanto Purnomo, Gerda Gulo, Juliana Wilson, Scott Guggenheim, John Victor Bottini, and Sentot Surya Satria. Special thanks go to Yulia Herawati, Gregorius Pattinasarany, Gregorius Endarso, Joey Neggers, and Lina Marliani for their outstanding support in survey preparation, oversight and research assistance, and to Pascaline Dupas and Rema Hanna for very helpful comments and suggestions. We thank the Government of Indonesia through the Ministry of Planning (Bappenas), the Coordinating Ministry for Economy and Social Welfare (Menkokesra), and the Ministry of Home Affairs (Depdagri) for their support for the program and its evaluations. Special thanks to Sujana Royat (Menkokesra); Prasetijono Widjojo, Endah Murniningtyas, Pungky Sumadi, Vivi Yulaswati (Bappenas); and Ayip Muflich, Eko Sri Haryanto, and Bito Wikantosa (Ministry of Home Affairs). The University of Gadjah Mada (UGM), Center for Public Policy Studies, implemented the surveys used in this analysis. Financial support for the overall PNPM Generasi program and the evaluation surveys has come from the Government of Indonesia, the World Bank, the Decentralization Support Facility, the Netherlands Embassy, and the PNPM Support Facility, which consists of donors from Australia, the United Kingdom, the Netherlands, and Denmark, and the Spanish Impact Evaluation Fund, and funding for the analysis came in part from NIH under grant P01 HD061315. Olken was a consultant to the World Bank for part of the period under this evaluation (ending in 2008), Onishi consulted for the World Bank throughout the period under study, and Wong worked full time for the World Bank throughout the period under study. The views expressed in this paper are those of the authors alone and do not represent the views of the World Bank, the National Bureau of Economic Research, or any of the many individuals or organizations acknowledged here.
“Should Aid Reward Performance? Evidence from a field experiment on health and education in Indonesia” (with Junko Onishi and Susan Wong). American Economic Journal: Applied Economics, vol. 6, no. 4, October 2014 (pp. 1-34).