Development Targets and Costs

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Development Targets and Costs

• Based on paper by
• Luc Christiaensen
• Christopher Scott
• Quentin Wodon

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Outline

• Current practice
• The political economy of target setting
• Approaches to target setting
• Historical benchmarking Macro-simulations
• Micro-simulations
• Approaches to cost estimation
• Average costs and efficiency
• Concluding remarks

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1. Are current targets realistic?

• A target is a value which a specific indicator
  should attain by a particular date
• Current practice
• Honduras cost of reaching PRSP targets and IDG
  goals together with anticipated wage increase for
  public employees is high vs HIPC debt relief
• Guinea
• Goal 10 annual agricultural growth rate by
  2010
• Only 5 of the 3921 recorded 3-year moving
  averages of ag growth in all countries worldwide
  over past 4 decades exceeded 10 growth rate
• Cambodia
• Goal reduce child undernutrition by 15 points
  from 1998 to 2000
• requires annual GDP/cap growth rate of 31 (2005
  as end date)

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2. Political economy of target setting

• Targets provide incentives
• a) Resource mobilization
• targets must be realistic
• b) Resource allocation and consensus building
• ? broad societal support and iterative process
  required
• ? proliferation of targets erodes their
  effectiveness

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Political economy of target setting, cont. 2

• c) Performance evaluation targets introduce
  accountability
• Targets must be attainable and carry broad
  societal support
• Poor performance by implementing actors must be
  distinguishable from the effects of external
  shocks
• Failure to meet targets must entail consequences
  for the actors

While targets have in principle positive
incentive effects, these do not follow
automatically
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Political economy of target setting, cont. 3

• Experience from Britain
• When the Government set local authorities a
  target for collecting recyclable waste, it seemed
  a good idea. Even better, the local authorities
  persuaded residents to take the trouble to
  separate the stuff that was worth recycling from
  all the rest--and met their target. There was
  only one snag. The target was for collecting
  recyclable waste, not for recycling it. As a
  result, some local authorities put the rubbish
  that had been so carefully separated back in with
  the rest of their garbage, and incinerated the
  lot.

Targets must be SMART Specific, Measurable,
Achievable, Relevant and Time-bound
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Selected choices in target setting

• Targets for inputs, outputs, or for outcomes and
  impacts?
• Focus on outcome and impact targets, though input
  and output targets possible for short run
• Check for vertical and horizontal consistency
  (Uganda)
• Caution against proliferation of targets
• Point targets or target ranges?
• Given uncertainty surrounding input/output
  relations
• target ranges for outcomes/impacts
• target points for inputs/outputs

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Selected choices in target setting, cont. 2

• Aggregate or disaggregate targets?
• Equity versus efficiency
• But perverse incentives and proliferation of
  targets
• Short-run or long-run targets?
• Decision rule marginal cost of, say, poverty
  reduction equated across time periods
• In practice thought needs to be given to
  appropriate time path for achieving the target,
  depending on state of country

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3. Approaches to target setting

• To facilitate resource allocation and to foster
  accountability it is key that targets are
  realistic they must be technically and fiscally
  attainable
• Three methods to gauge technical feasibility
• Historical benchmarking
• Macro-simulations
• Micro-simulations

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3.1 Historical benchmarking

• Historical evidence and international comparison
• Neither time nor skill intensive and data readily
  available? hence, this is a minimum requirement
• Agricultural growth in Guinea and neighboring
  countries 1970-2000

3-yr moving avg Guinea Cote dIvoire Ghana Mali Senegal
Mean 1987-2000 4.2 3.2 3.0 4.0 1.3
Frequency 1970-2000 Moving avg. gt10 Moving avg lt 0 0 0 0 6 0 6 3 6 2 8
Proj. growth 2010 (lin. trend) 1987-2000 1970-2000 7.3 - 2.8 2.6 7.8 3.3 0.4 4.8 4.8 1.4
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3.2 Macro-simulations

• Gauge feasibility of poverty and social
  development targets by feasibility of implicit
  economic growth requirements
• Two methods to set targets for poverty
• Growth required to reduce poverty by a certain
  percentage, assuming no change in income
  distribution
• Estimated net elasticity to growth

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Liberia growth pov. simulations
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Macro-simulations, continued

• Estimated elasticity of social indicators to
  GDP/cap growth controlling for time trends and
  urbanization (elasticities can be estimated
  with world wide panel data (splines, 5 intervals)
  for GDP/cap and urbanization)
• Exemples
• Demery and Walton (1999) use an elasticity of
  under 5 child mortality to GDP/cap growth of 0.4
  (SimSIP elasticity varies between zero and 0.47)
• Alderman et al. (2000) estimate an elasticity of
  prevalence of child malnutrition to GDP/cap
  growth of - 0.09 (SimSIP elasticity between zero
  and 1.1)

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Macro-simulations, continued

• Other intervening factors may be important ?
  results of growth based simulations indicative
  only
• Some tools arguably more sophisticated though
  also more data and skill intensive yet
  literature now exists
• Must be used with caution as results are not
  indicative of policy actions needed

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3.3 Micro-simulations

• Country-specific nature of relationship between
  development outcomes and their determinants lost
  in macro approach ? regression analysis and
  micro-simulations based on household data
• Application to child malnutrition in Ethiopia
• 15 years of 2.5 growth of income/adult
  equivalent and bringing at least one female
  adult/household up to level of primary school
  level reduce prevalence of child stunting by 9 to
  29 percent, far removed from international goal
  of halving child stunting by 2015
• If combined with nutrition education programs ?
  reduction by up to 42
• Increasingly possible, as more and more household
  data sets are becoming available, yet technically
  difficult

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4. The cost of reaching a target

• Targets must be technically AND fiscally
  attainable
• Effect of (public and private) expenditures on
  development outcomes depends on
• amount spent on these objectives
• effectiveness of money spent
• Fiscal sustainability of targets can be gauged by
• Governments capacity for increasing public
  spending
• Governments scope for enhancing efficiency of
  its spending

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4.1 Costs and fiscal sustainability

• Need for detailed sectoral information
• SimSIP simulator for estimating costs of reaching
  education targets
• Education example average costing method
• Need for assumptions on
• Demographics number of children of various age
  groups joining education system

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Costs and fiscal sustainability, cont.2

• Data on
• Cost parameters
• Supply-side costs teacher wage, teacher-student
  ratio, administrative costs
• Demand side costs stipend value, coverage
• Investment costs cost per classroom, teacher
  training
• Delivery system
• length of schooling cycle, repetition, promotion,
  and drop out rates by cycle or by grade,
  distribution of age at entry for each cycle
• Targets for
• Changes in distribution of age at entry
• Changes in repetition, promotion and drop out
  rates

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Costs and fiscal sustainability, cont.3

• Logic of education costing
• Detailed cohort analysis depending on efficiency
  parameters (promotion, repetition, drop out, )
• Parametrize software to reproduce initial
  conditions
• budget spending by cyle
• teacher salaries, share of administrative budget
• number of children enrolled by cycle
• net gross enrollment rates, with targets
• realistic other parameters (cost of new
  schools/classrooms)
• Change efficiency parameters and demographics
  over time, and track various costs as they evolve
• Number students ? number teachers/classrooms ?
  costs

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Costs and fiscal sustainability, cont.3

• Selected parameters for Liberia primary level
• (all parameters must be checked)
• Net enrollment (CWIQ 2007) 37.3 (low probably
  due to conflict older children enrolling in
  last few years)
• Gross enrollment (CWIQ 2007) 86.3
• Budget /- US 4 million
• Number of teachers 26,755 ? cost/teacher
• Number of students 894,316 ? pupil/teacher ratio
  33
• Share of public sector 67 (incl. community)
• New entrants every year /-110,000, to increase
  in future
• Admin cost 15 (assumption)

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Costs and fiscal sustainability, cont.3

• Selected parameters for Liberia secondary level
• (all parameters must be checked)
• Net enrollment (CWIQ 2007) 15.2 (low probably
  due to conflict older children enrolling in
  last few years)
• Gross enrollment (CWIQ 2007) 51.3
• Budget /- US 1.5 million (need to check)
• Number of teachers 8756 ? cost/teacher
• Number of students 150,914 ? pupil/teacher ratio
  17
• Share of public sector 46 (incl. community)
• New entrants depends on primary schooling
  parameters
• Admin costs 15 (assumption)

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Example of simulation (VERY prelim.)

• Note 2003 in simulator represents 2006 in
  reality Assumes no increases in real wage for
  teachers Secondary spending expected to increase
  faster Possibility to estimate needed investment
  costs overall costs probably underestimated/need
  to get correct data

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4.2 Efficiency considerations

• Outcomes can be increased through
• Expansion of inputs keeping efficiency constant
• Increase in efficiency keeping inputs constant
• Given limited tax base, room for expansion of
  social expenditures often narrow
• Murray et al. (1994) typical country in Sub
  Saharan Africa could improve health outcomes by
  40 simply by reallocating resources to most
  cost-effective intervention mix

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Measuring efficiency

Best performance frontier
b
Ea/(ab)
o
a
   
 
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Measuring efficiency, examples

• Efficiency of national health systems (WHO)
• Output disability adjusted life expectancy
• Inputs real total (private and public) health
  expenditures/capita and average years of
  schooling
• Egt0.7 (good) Costa Rica, Sri Lanka, Bangladesh
  (good)
• 0.7ltElt0.5 (mediocre) Gambia, Viet Nam
• Elt0.5 (poor) most African countries, e.g. E for
  Guinea and Kenya respectively 0.47 and 0.32

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Concluding remarks discussion points

• In principle, targets powerful tools to foster
  accountability and facilitate consensus building
  
• Targets must be carefully designed and evaluated
  they must be SMART
• Chapter focused on feasibility aspect, though
  also need for more hard rules on other aspects of
  target design

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Remarks discussion points, cont. 2

• Set of readily applicable tools to assess
  technical and fiscal feasibility of development
  targets
• Each tool has its limitation ? need for joint
  application
• Tools must be used with care they are indicative
  of feasibility of targets, but not of policies
  needed
• Tools only useful in practice if readily
  available
• Need for continuous updating of elasticities
  public good
• Encourage policy simulations based on household
  data
• Research on efficiency of expenditures on social
  outcomes