Essays on dishonesty in welfare targeting: evidence from Indonesia
Creators: name: PRIMA, Rizal Adi
Publisher: name: RMIT University
Year: 2024
Subjects: classificationCode: 380102
subject: Behavioural economics

description: Indonesia currently administers one of the most extensive and complex welfare programs in the developing world. Over the last two decades, the government has supported approximately 65 million individuals living in poverty. It allocates roughly 3 billion USD/year in its annual state budget to finance the welfare programs. Despite the government's strong commitment to supporting various welfare programs over the years in Indonesia, determining eligibility (i.e. program targeting) has been challenging.

In well-established social security systems in many developed countries, governments benefit from regular tax return information to accurately predict an individual's welfare status. They also employ an income means test measurement to screen potential applicants and credibly target eligible welfare beneficiaries. This way of targeting is not feasible in developing countries like Indonesia. Tax returns are an unreliable measure of welfare status as most of the population work in informal sectors that are unaccounted for in government records. Further, in the absence of third-party information from employers, tax returns are essentially unverified self-reported information; ergo, prone to manipulation.

Given these difficulties, Indonesia's government must rely on alternative proxies for welfare status to target welfare beneficiaries. For the last two decades, the government has been employing household asset ownership to measure welfare in a process known as proxy means test (PMT) targeting. A household in the social registry list is eligible for welfare support only if its PMT score is below the relevant poverty cut-off level. This targeting method requires regular collection of extensive data to provide the necessary information to produce the score. To support this massive undertaking, the government established a well-maintained social registry database containing detailed socio-demographic and asset ownership information for 97 million individuals, covering 40% of the most impoverished individuals in the population. Up to 2015, The database was regularly updated every three years through a nationwide social registry census where government officials visited each household listed in the social registry and updated their socio-demographic and asset ownership information. In 2018, the government introduced the Mekanisme Pemutakhiran Mandiri (MPM-self-reporting mechanism) as part of welfare targeting. The MPM enables data in the social registry to be updated by allowing individuals who are neither receiving support from the government nor on the social registry list to self-report their asset ownership and socio-demographic information at appointed registration locations.

 Knowing that asset reports determine program eligibility, welfare benefit applicants have a strong incentive to misreport their private information (i.e. asset reports). However, the Indonesian government still has no credible means to verify reported asset ownership claims. This thesis aims to empirically test the presence of asset misreporting behaviour and factors associated with it during the most recent social registry census in 2015 and after the new self-reporting mechanism was introduced in 2018. The thesis expects to contribute to the broader literature on welfare targeting mechanisms and the rapidly growing literature on dishonest behaviour.

The thesis consists of seven chapters, the first of which introduces the topic and provides a general overview of the thesis. The second chapter reviews the chronological history of the development of welfare targeting mechanisms in Indonesia. Chapter 3 then presents a broad overview of the relevant literature on dishonesty across disciplines, including economics, psychology, and behavioural studies, undertaken to identify the potential antecedents for dishonest behaviour in the welfare targeting context. The thesis then presents three empirical chapters examining dishonesty in Indonesia's welfare programs' targeting system.

Chapter 4 reports the first empirical test of asset misreporting during social registry updating in 2015. The chapter constructs unique data from two datasets: the asset report data from the social registry census and the follow-up household survey data collected two months after the completion of the census. The two datasets differ primarily in the purpose of the data collection as communicated to respondents. Unlike the census, the survey was framed as independent research disassociated entirely from welfare benefits. Therefore, During the census, respondents have the incentive to misreport to be included in the social registry list, while in the follow-up survey, there is no incentive to misreport.  Therefore, the chapter uses the follow-up survey data as the benchmark for the true assets' ownership. With this empirical framework in mind, the chapter estimates that one-third of households in the survey potentially underreported their assets during the 2015 nationwide social registry census. Further, male-headed households with higher consumption per capita were more likely to misreport their assets. Households endowed with welfare benefits prior to the census were also less likely to misreport.

Chapter 5 investigates the prevalence of strategic asset misreporting in Indonesia by taking advantage of an unusual natural field experiment. Unknown to both interviewers and interviewees (i.e., a double-blind setting), during the census in 2015, the 25 million respondent households in 34 provinces were randomised among four questionnaire models. Among the 41 asset questions, two asset questions differentiate the questionnaires administered to household respondents. Each randomised questionnaire had one of two options. (1) households exposed to either a question on flat-screen television (TV) ownership or a question of the number of rooms and (2) either a question on the number of active cell-phones SIM Card or having a toilet in the house. The chapter uses the randomisation of the questionnaire as the exogenous factor to pinpoint the misreporting behaviour in relation to luxury assets (e.g., television and handphones) during the social registry census. The TV questionnaire treatment does not significantly affect misreporting behaviour; however, households exposed to the SIM card questionnaire were less likely to misreport assets. Further, there was insufficient evidence that asset misreporting is associated with economic shocks or the severity of economic inequality and poverty in the respective village.

Chapter 6 investigates the impact of two behavioural interventions designed to reduce asset misreporting in the context of Indonesia's welfare program: a threat and a pledge. The chapter reports a series of framed field experiments with 599 welfare benefit applicants in 20 Indonesian villages to test whether two text stimuli interventions discourage dishonest asset self-reporting. Consistent with the previous chapter, the analysis shows that men are more likely to be dishonest than women, and that verification threats, but not honesty pledges, significantly reduce the likelihood of underreporting. Further, men are more responsive to behavioural interventions than are women. The study highlights the importance of text stimuli with the appropriate content in reducing misreporting and shows that small changes in the design of a reporting form can improve the quality of data used for welfare targeting in developing countries.

Last, Chapter 7 concludes, discusses potential further research and the limitations of the thesis and formulates policy recommendations based on the empirical findings accumulated from Chapters 4-6.