Proxy Means Tests for Targeting Social Programs: Simulations by Margaret E. Grosh

By Margaret E. Grosh

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47 Glewwe and de Tray, The Poor during Adjustment: A Case Study of Côte d'Ivoire No. 48 Glewwe and van der Gaag, Confronting Poverty in Developing Countries: Definitions, Information, and Policies No. 49 Scott and Amenuvegbe, Sample Designs for the Living Standards Surveys in Ghana and Mauritania/Plans de sondage pour les enquêtes sur le niveau de vie au Ghana et en Mauritanie No. 50 Laraki, Food Subsidies: A Case Study of Price Reform in Morocco (also in French, 50F) No. 51 Strauss and Mehra, Child Anthropometry in Côte d'Ivoire: Estimates from Two Surveys, 1985 and 1986 No.

Conversely, the higher the priority assigned to saving limited budget funds, the more important it is to eliminate leakage. In practice, poverty and social programs aim to raise the welfare of the poor as much as possible within their budget constraints. Both kinds of error are, therefore, important, and a firm preference for one over the other is rarely stated. It is perhaps interesting to note that minimizing undercoverage has been a traditional argument in favor of universal subsidies, especially of food prices.

Because the information on ownership of durable goods is relatively difficult to verify, an improvement in targeting accuracy must be weighed against the likelihood of misrepresentation and the costs of verification. If these problems are important, it may be just as satisfactory to use Model III. Page 13 Model V uses only those five variables that produce the highest t values in the regression model. The variables come from all four classes of information. The model therefore suffers from the same problems of verification that Models III and IV do, but using so few variables would reduce information processing costs.

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