INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE IFPRI ARE TARGETED HUMAN-CAPITAL SUBSIDIES COST EFFECTIVE? THE CASE OF PROGRESA IN MEXICO Dave Coady IFPRI Prepared for Poverty Day 2002 (

IFPRI Page 2 PROGRESA  OBJECTIVES ALLEVIATION OF CURRENT POVERTY SUSTAINED DECREASE IN POVERTY  FEATURES GEOGRAPHIC TARGETING HOUSEHOLD TARGETING CONDITIONING OF TRANSFERS  PRESENTATION COST STRUCTURE AND TARGETING EDUCATION COMPONENT

IFPRI Page 3 ANALYSIS OF COSTS  Cost Categories Opportunity, Financial (Cash vs. In-Kind) Program, Private, Social (Who Incurs?) Fixed, Variable (Timing) Actual, Incremental (Program Related)

IFPRI Page 4 Program Costs  Program Activities Selection of Localities Identification of Beneficiary Families Incorporation of Families Certification of Actions Delivery of Cash Transfers Follow-up Services Evaluation of Program (X)

IFPRI Page 5 Private Costs: conditng, colln.  Health: scheduled trips, platicas Total annual travel time, 4hrs/month Total annual time spent, 6.3hrs/month Total annual cost of travel, $95.7/family Annual food transfer, $1500 Implies $6.38/$100 received 40% increase trips due to program (29% additional) Incremental private cost, $1.82/$100

IFPRI Page 6 Private Costs (contd.)  Secondary Education Average annual travel cost, $316 Annual transfer, $2170 Implies, $14.6/$100 Program increases enrollment 8.2% Incremental cost, $1.5/$100

IFPRI Page 7 Private Costs (contd.)  Collection of Transfers Every two months, 6 annual trips Annual travel cost, $75 Annual total average transfer, $3900 Implies, $1.9/$100 60% trips incremental, $1.2/$100

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IFPRI Page 10  Total program costs around 9%  Locality targeting, 0.4% (4%)  Household targeting, 2.7% (30%)  Conditioning costs, 2.3% (26%)  Other operating costs, 3.6% (40%)  Other programs Tortivales, $14/$100;Liconsa, $40/$100 Other countries much higher

IFPRI Page 11  Total Program+Private Costs Total Costs, 11.3% Program Costs, 9% (80%) Private Costs, 2.4% (20%) Private/Program, 27% So private costs as important as household targeting and conditioning costs

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IFPRI Page 13 Concluding Remarks  ALTHOUGH RETURNS TO HOUSEHOLD TARGETING RELATIVELY LOW ON AVERAGE, THESE ARE MUCH HIGHER ON THE MARGIN (TWICE)  OTHER IMPORTANT ISSUES WHEN TARGETING SOCIAL AND POLITICAL DYNAMIC (ROLE OF SELF- SELECTION)

IFPRI Page 14 EDUCATION COMPONENT  TRANSFERS CONDITIONED ON ENROLLMENT AND 85% ATTENDANCE  TRANSFERS INCREASE WITH GRADE (3- 9) AND HIGHER FOR FEMALES IN G7-9  SUPPLY-SIDE INDEPENDENT BUT EXPECTED TO MAINTAIN QUALITY  COST-EFFECTIVENESS ANALYSIS DOUBLE-DIFFERENCE REGRESSION ESTIMATION OF PROGRAM EFFECT AND DISTANCE COMBINE WITH COST OF GRANTS AND SCHOOLS

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IFPRI Page 20 Concluding Remarks  RELATIVE COST-EFFECTIVENESS IS CONTEXT SPECIFIC DEPENDING E.G. ON EXISTING SUPPLY SITUATION  FOR DEVELOPMENT GETTING CHILDREN TO SCHOOL IS NECESSARY BUT NOT SUFFICIENT. ALSO NEED: TO ENSURE THAT ONCE IN SCHOOL THEY RECEIVE A QUALITY EDUCATION A MACROECONOMIC CLIMATE CONDUCICE TO ABSORBING INCREASE IN SKILLED LABOR FORCE PRODUCTIVELY