39 two components: one that was expected to affect equally all households, consisted in improving infrastructure such as rural roads, power lines and piped water. The other component was a loan to households to finance initiatives to raise farm yields, animal husbandry, and tree planting. The medium term evaluation, based on household surveys five years after the program initiation, showed that incomes had risen but consumption did not change. The long term evaluation, based on survey data of 5 years after program completion (10 years after program initiation), showed that the permanent income of the households had not changed and neither had consumption. Whether these results can be interpreted as evidence of the permanent income hypothesis of consumption, as the authors did, or evidence of extreme risk aversion of the poorest households, is debatable. The main lesson is that program design will affect the outcomes and must consider the beneficiaries’ preferences and constraints to anticipate their reaction to the public program.

The role of public spending on physical capital formation, and its consequences for welfare and poverty, has not been explored extensively using impact evaluation methods. Curiously, the cost-benefit analysis of these projects registers the highest difference between ex-ante and ex-post rates of return in projects funded by the World Bank (Herrera, 2005). Similarly, the UK Treasury pinpointed capital expenditures as the largest source of optimism bias in public investment projects, and identified as its causes the poor definition of the objectives of the project and the poor identification of stakeholder requirements (UK Treasury, 2003). On both counts, identifying the projects objectives and identifying stakeholders, the impact evaluation methods can shed much light.

Only until recently have some infrastructure projects involved impact evaluations. Some examples are in the area of water and sanitation (Poulos, et.al, 2006.), in urban transport (Boarnet, 2006), in rural roads (van de Walle, 2006), and in dams (Duflo, 2005). These evaluations have in common that they focus on two key issues: endogeneity of placement and the distributional consequences. For instance, the urban transport project evaluation incorporates the fact that city dwellers adjust their location and travel patterns partially based on public transport considerations. More motivated and employable people might choose to live near the transport route, and hence ex-post evaluations that find that people living next to the project have higher employment rates must take that into consideration. In the case of dams, the evaluation incorporated the fact that these are placed depending on the regions’ wealth and was able to identify the counterfactual group with geographic characteristics. The evaluation showed the different impact of dam construction in the own district and the downstream district: agricultural output increased downstream and poverty fell, while in the districts where the dam was built poverty increased. The evaluation showed a net present value of 1 percent, without considering the deadweight cost of public funds required for project funding.