Optimal Income Support Targeting

27 Pages Posted: 14 Feb 2012

See all articles by Stefan De Wachter

Stefan De Wachter

affiliation not provided to SSRN

Sebastian Galiani

University of Maryland - Department of Economics

Date Written: February 12, 2012

Abstract

This paper considers the practical problem of distributing a fixed budget for poverty alleviation to a population whose poverty status is not directly observable. The solution we propose improves on the techniques that are commonly used in practice by taking both the concavity of the social welfare function and the entire conditional distribution of poverty status into account, and by endogenously determining the optimal transfer levels. We provide an algorithm to calculate the optimal transfers for any population of benefit applicants. Finally, we explain how our method is a generalization of statistical classification techniques and thus provide an intuitive discussion of the defects of currently operational methods.

Keywords: classification, poverty, program design, targeting

JEL Classification: H2, C4

Suggested Citation

De Wachter, Stefan and Galiani, Sebastian, Optimal Income Support Targeting (February 12, 2012). Available at SSRN: https://ssrn.com/abstract=2003927 or http://dx.doi.org/10.2139/ssrn.2003927

Stefan De Wachter

affiliation not provided to SSRN ( email )

Sebastian Galiani (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

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