Mexico’s Oportunidades: Self-Selection in Targeted Social

Programs

César MartinelliProfessor of Economics, ITAM, Mexico City and

Wilson Center/Comexi Public Policy Scholarand

Susan W. ParkerProfessor of Economics, CIDE, Mexico City

Introduction

Conditional cash transfers (CCT) have become a major poverty alleviation strategy across Latin America Mexico, Honduras, Nicaragua, Jamaica, Colombia,

Brazil, Argentina, Ecuador

Key innovation: condition grants to investment in children’s human capital Current and future poverty reduction goals, e.g. by

improving HK of children today, expectation that future poverty will be reduced

Introduction, continues

How are beneficiaries selected, in context where income not observable? As in other social programs in

developing countries, based on information provided by applicant

Obvious incentives to misreport

Introduction, continues

According to economic theory, applicants will underreport given material incentives

Lying is consider immoral by many, perhaps most moral thinkers … need to look at the evidence

Stigma (social embarrassment) and self-deception may lead to overreporting

Objectives of paper

What is prevalence of misreporting in social programs?

Who misreports? What impact on who receives

benefits?

Objectives, continues

Previous studies limited by lack of information on misreporting

Take advantage of context where program verified economic conditions, allows us to compare reported with actual conditions

Description of Oportunidades

Large scale poverty alleviation program Begun in 1997 in rural areas, expanded to

urban areas in 2001. By 2004, 5 million beneficiary families (1/4 of all households)

Cash transfers conditional to investment in human capital Regular school attendance of children Regular clinic visits of family members Transfers given directly to mother Average monthly benefits: US$30, overall increase of

30% over monthly income

Description of Oportunidades cont.

Health and nutrition component: Basic health care package Fixed income linked to clinic attendance Nutritional supplements given to pregnant

women and children aged 0 to 2 (or up to age 5 if malnutrition perceived)

Monthly Benefits

Description of Oport. cont.

Targeting differs between rural and urban Oportunidades

Rural targeting: Geographic: poor communities identified using

community poverty index Household: ALL HH in eligible communities

applied socio-economic questionnaire, regression analysis (proxy means test) carried out to determine who was poor/eligible on basis of characteristics

Description of Oport. cont.

Urban areas: interviewing all households deemed too costly, Self-selection introduced

Urban targeting: Geographic: poor urban areas identified Program modules set up in poor areas during 2 months,

where household go to apply for benefits Households applied socio-economic questionnaire in the

module, based on answers, households declared initially eligible

Initially eligible HH receive follow up visit to verify info reported in module. Final classification made

Issues in Self-Selection

1. Who is aware of the program?2. Who applies to the program?3. How is eligibility determined?... at these three stages it is possible

to introduce mistakes (give program to who is “not poor” or deny it to who is “poor”)

We focus on stage 3 in this talk—stages 1 and 2: work in progress

Eligibility: Poverty Regression

Problem to determine who is “poor”: unreliability of income or consumption data

Methodology: poverty regression… search for observable household characteristics that are correlated with income and estimate a “poverty score”

Oportunidades poverty regression(poor: score ≥ 0.69)

Family size/number of rooms Family size Female head Number of children below 11 Head has no schooling 1 to 5 years of schooling Age head (years) No toilet Toilet w/o running water Unpaved floor No gas boiler No refrigerator No washing machine Neither car nor truck Rural area Region Constant

0.139 0.176 -0.02 0.255 0.380 0.201 0.005 0.415 0.220 0.475 0.761 0.507 0.127 0.159 0.653 From -0.657 to 0 -1.579

Selection of urban beneficiaries

Applicants to Oportunidades were asked to answer questionnaire about household characteristics

Self-report was used to determined preliminary eligibility using poverty regression

Household visits to verify answers to questionnaire and assess definitive eligibility status

Data

ENCASURB:1. Inclusion questionnaire, carried out

at the module2. Additional questionnaire after

initial eligibility determines, carried out at the module

3. Verification questionnaire, carried out at household

Characteristics of applicants

Definitions

For each good g, Ag: applicants who assert having it

Dg: applicants who deny having it

Hg: found having the good

Ng: found not having the good

Then:

A model of misreporting

wg: belief of applicant about weight of good g in poverty score

δ: applicant’s assessment of probability of verification visit

p: belief about penalty for getting caught underreporting

Ba: (monthly) benefits from program for applicant’s household

Ya: (monthly) household expenditure (as proxy for income)

Xa: education, age, gender, etc of applicant

A model of misreporting, continues

A model of misreporting, continues

Applicant underreport good g if

Applicant overreport good g if

Assumptions: Risk aversion coeff. = 1 Random terms are Gumbel distributed

(i.e. use logit regressions)

( ) ln( / )w p B Y Xg g a a g a ga 1 1 1

w B Y Xg a a g a galn( / )1 2 2

Mg. effects of program benefits

Beliefs vs. true relative weights

Mg. effect of years of education

Male rather than female reporter

Underreporting vs. final status

Conclusions

Underreporting is widespread Overreporting occurs for goods whose absence is

associated with poverty—so have weight in poverty regression!

Both under and overreporting are sensitive to program benefits: evidence of a cost of lying and a stigma consideration (even in front of strangers!)

Need to revisit poverty regression methodology More generally: room for cross-fertilization

between social policy design and behavioral economics

Reference

Deception and Misreporting in a Social Program (by Cesar Martinelli and Susan Parker) available at http://ciep.itam.mx/~martinel/