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Essays in Development Economics

  • Author(s): Lee, Diana Kim
  • Advisor(s): Ligon, Ethan
  • et al.
Abstract

Poverty and health are two topics in the field of development economics that are of critical importance to both researchers and policy-makers. Despite advances in poverty alleviation and gains in health outcomes in many developing countries, many challenges remain. Two of these challenges include accurately measuring poverty and improving the quality of health care delivery systems. In this dissertation, I present three essays with theoretical, empirical, and policy-relevant insights into these two challenges.

The first essay addresses the issue of accurate poverty measurement by developing a new asset index that captures long run household economic well-being. The accurate measurement of household well-being is necessary for measuring poverty levels and targeting poverty programs. However, since standard expenditure aggregates are costly to collect, relative well-being in developing countries is often measured using asset indices based on durable goods ownership. Although various methods exist to generate proxies for economic well-being (e.g., principal component analysis), the underlying theories associated with these methods have not been formalized. This makes it difficult to interpret the economic meaning of the resulting indices and can lead to inaccurate targeting and evaluation. In this paper, I develop a new asset index, the utility index, by modeling and structurally estimating household preferences over discrete assets. By drawing from economic theory, the utility index can be more directly interpreted as capturing long run household well-being. In contrast to existing asset indices, the utility index incorporates additional information on prices, demographics, and spatial and temporal variation and can therefore be used for policy simulations that are not otherwise possible. After developing the theoretical model, I describe a strategy to construct the utility index by structurally estimating the marginal utility associated with each asset. I then demonstrate how the utility index can be used by measuring changes in poverty in Nicaragua using data from the Living Standards Measurement Surveys. I also use the model to project changes in poverty under a constant income distribution but changing prices and find that about a third of the poverty decrease measured from 1998 to 2005 can be attributed to decreasing asset prices. In addition, I show through the empirical analysis that traditional asset indices are only moderate approximations for household well-being. Finally, I discuss and demonstrate the distinctions between asset and consumption measures, which point to the complementary nature of the two strands of measurement.

The second essay presents an alternate approach for improving accurate poverty measurement in developing countries. Although the utility index developed in the first essay presents a method for measuring long run economic well-being, complementary measures of short run welfare are necessary for identifying households which are vulnerable to falling into transitory poverty. Again, given the expenses associated with collecting full consumption data, researchers have developed methods to construct wealth indices based on dichotomous asset and consumption indicators. This work provides guidance on generating such indices by comparing across various methods of construction and variable choices. Specifically, we assess the performance of alternate indices using data from the Living Standards Measurement Surveys in five countries in Sub-Saharan Africa--Ghana, Rwanda, Uganda, Tanzania, and Malawi. We compare indices against a benchmark of household per capita expenditure according to three criteria: rank correlation coefficients, sensitivity to identifying poor households, and accuracy of classifying households as poor or non-poor. Comparing across construction methods, we find that indices generated using principal components analysis correspond most closely with expenditure, though variation across construction methods is small. Comparing across variable inclusion groups, we find that indices generated using a combination of indicators drawn from the categories of staple food consumption, other food consumption, housing quality, semi-durables expenditure, and durables ownership tend to outperform indices generated using variables from only one or two categories. We also assess the various indices in urban and rural subsamples and in analyses of repeated cross-sections and find that index performance is similar to what we find in national, single wave analyses.

The third essay turns to the challenge of improving the quality of health care delivery systems by looking at provider investment decisions. Pay-for-performance (P4P) programs, which aim to increase health service provision and quality using financial incentives, have been recently introduced in a number of developing countries. P4P programs contract directly on outputs without specifying the mechanisms for improvements, allowing providers to innovate and modify different aspects of health care delivery as needed. Characterizing these provider responses can help to identify successful mechanisms for quality improvement and enhance our understanding of the links between P4P and overall health systems strengthening. In this paper, we examine provider input responses to the Rwandan P4P program using facility-level data from the 2007 Demographic and Health Survey Service Provision Assessment (SPA) collected after the randomized program rollout to a subset of districts. We focus on facility-level incentives for institutional deliveries, which, as documented in earlier research, resulted in higher institutional delivery rates. Using the SPA facility data, we find that the program's effect on institutional delivery rates is comparable to results in previous studies that used household surveys. Comparing system inputs, we find positive treatment effects for a general management indicator and the daily presence of staff per capita providing maternity-related services. There are no differences in other delivery-specific and general health care delivery inputs. Additionally, we perform a mediation analysis to assess the link between inputs and outcomes and find that management and staffing differences explain a relatively small fraction of the P4P effect on institutional delivery rates. The small mediation effects indicate the potential importance of unobserved factors, such as recruitment effort, in the provider production function. Furthermore, the null results for the other analyzed inputs suggest a weaker link between P4P and overall health system strengthening.

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