Economic Issue

of the Day

Philippine Institute
for Development Studies
S u r i a n s a m g a Pa g -a a ral
Pangkaunlaran ng Pilipinas

Vo l . V I I N o . 4 ( J u l y 2 0 0 7 )

Targeting: reaching the poor

argeting is a tool used to select eligible beneficiaries of

any social assistance/safety net program. Since the poor
is at the heart of such government intervention, it is
important for any targeting mechanism to correctly identify poor
households or individuals.
Targeting is meant to ensure maximum coverage of the poor
and at best, increase the benefits that go to them given limited
fiscal resources. It is also intended to reduce the budget
requirement of the program while maintaining the same level of
benefits that accrue to the poor (Box 1).
Targeting mechanisms are classified into self-targeting and
administrative targeting. Under self-targeting, the poor people
enroll themselves as beneficiaries of a particular program. In
contrast, under administrative targeting, the project staff
determine who are eligible to participate based on a set of criteria.
Different targeting mechanisms fall under the administrative
targeting category. They vary depending on the method or
approach used to reach the target population. To wit,
z Verified means test seeks to gather complete
information on households (e.g., income and/wealth)
and verifies the information collected against
independent sources. Eligibility is based on household
income.
z Proxy mean test generates a score for applicant
households based on fairly easy-to-observe household
characteristics (e.g., location and quality of dwelling,
ownership of durable goods, demographic structure,
education and occupation of household members). A
households score is then compared against a
predetermined cut-off to determine whether it is eligible
or not.
z Community-based targeting uses a group of community
members/leaders to decide who in the community
should participate in the program.
z Categorical or indicator targeting automatically enrolls
to the program all individuals in a specified category
(e.g., age, gender, ethnicity, demographic composition
or geographic location).

Box 1. Why targeting matters: Illustrative example

Total Population
Poor Population

100
50

Higher per capita transfer with fixed budget (say, PhP1,000)

With perfect targeting:
PhP20 benefit per beneficiary
With no targeting:
PhP10 benefit per beneficiary
Smaller budget with fixed per capita transfer to the poor
(say, PhP 10)
With perfect targeting:
PhP500 (50% budget savings)
With no targeting:
PhP1,000

Among the government programs that employ narrow

targeting are food-based transfers (e.g., supplementary feeding
programs (SFPs), food stamps/vouchers/coupons, food-forwork/school program), means-tested social assistance,
microcredit targeted to rural women, and programs focused on
poor geographical areas.
Ideally, these targeting mechanisms should concentrate the
benefits of the government program to the poorest segments of
the population. However, errors of inclusion or exclusion are
quite inevitable. Error of inclusion occurs when unintended
individuals or households get to the roster of beneficiaries. It
may be due to faulty project design or implementation or at
worse, due to vested interest of some individuals or political
parties. On the other hand, error of exclusion occurs when
deserving individuals or households are missed out, not permitted
or not able to participate in the program. It may be attributed to
factors such as lack of knowledge of the existence of the program,
some constraints (e.g., catastrophic illness or sudden death) that
hinder eligible households to participate, and household decision
not to participate because the benefits do not compensate for
the costs (e.g., cost of transport) involved in their participation.
In addition, both errors are affected by the indicators used for
screening the participants as well as the resources available to
fund the intervention.

Economic Issue of the Day

TARGETING

Vo l . V I I N o . 4 ( J u l y 2 0 0 7 )

A targeting mechanism can be assessed by

estimating the leakage rate (i.e., measure of the
inclusion error) and undercoverage rate (i.e., measure
of the exclusion error). The leakage rate is the ratio of
the number of nonpoor households included in the
program to the total number of beneficiaries. On the
other hand, undercoverage rate is the ratio of the
number of poor households that should be
beneficiaries but are not, to the total number of poor
households. An illustration is given in Table 1.
At best, errors of inclusion and exclusion under
perfect targeting are zero and so are the leakage and
undercoverage rates (Table 2). However, this is not
easy and almost impossible to achieve primarily
because of the difficulty in acquiring accurate
information (e.g., data on income and wealth) about
the prospective beneficiaries of the program, not to
mention the administrative cost associated with it.
Nevertheless, these errors can be minimized, if not
totally eliminated. It is possible by finetuning the
targeting methods. This, however, would imply higher
costs. Consequently, the program budget shrinks and
so does the benefit that goes to the beneficiaries. Thus,
implementing finer targeting methods is desirable only
when the benefits from reduced leakage and
undercoverage outweigh the cost of doing so. N

Table 1. Errors of inclusion and exclusion

Poor
(a)

Nonpoor
(b)

Total
(c)

Leakage Rate
(b)/(c)

0.31

Participate in intervention
(d)

Success
45

Inclusion error
20

65

Do not participate (e)

Exclusion Error
15

Success
20

35

60

40

Total (f)
Undercoverage rate
(e)/(f)

100

0.25

Table 2. Errors of inclusion and exclusion under perfect targeting

Poor
(a)

Nonpoor
(b)

Total
(c)

Participate in intervention
(d)

Success
60

Inclusion error
0

60

Do not participate (e)

Exclusion Error
0

Success
40

40

60

40

Total (f)
Undercoverage rate
(e)/(f)

Leakage Rate
(b)/(c)

100

References
Hoddinott, John. 1999. Targeting: Principles and practice. Washington,
D.C.: International Food Policy Research Institute.
Manasan, Rosario G. 2007. Who benefits from the Food-for-School
Program: Lessons in targeting. Philippine Institute for
Development Studies. Forthcoming.

The Economic Issue of the Day is one of a series of PIDS efforts to help in enlightening the public and other interested parties on the concepts
behind certain economic issues. This dissemination outlet aims to define and explain, in simple and easy-to-understand terms, basic concepts as they
relate to current and everyday economics-related matters.
This Issue was written by Janet S. Cuenca, Supervising Research Specialist at the Institute. She acknowledges the comments of Dr. Rosario G.
Manasan, Senior Research Fellow at PIDS.
The views expressed are those of the author and do not necessarily reflect those of PIDS and other member agencies and sponsors. N
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