An Economic Interpretation of Targeting Systems for Social Programs: The Case of Colombia’s SISBEN

SISBEN is a proxy means test index widely used as a targeting system for social programs in Colombia. The SISBEN index is a function of a set of household variables related to the consumption of durable goods, human capital endowment and current income. SISBEN was created by the Colombian government with the purpose of simplifying, expediting and reducing the cost of targeting individual beneficiaries of social programs at the various government levels. Firstly, we find that due to its simplicity, low operation costs and net social benefits being brought to participating communities, SISBEN expanded quite successfully and rapidly across municipalities and departments. It is currently used in a wide range of subsidized social programs, particularly by those linked to health subsidies, established by Colombia’s Social Security Law. Secondly, we conclude that the SISBEN index has a solid foundation in welfare index theory, and can be seen as either a quantity metric utility index or a composite index of alternative forms of the household utility function. Thirdly, when valuable categorical data is available, traditional statistical methods of model fitting are not the most efficient and an alternative algorithm was used. We evaluate the adequacy of the estimation method “Optimal Scaling and Alternate Least Squares” (ALS-OS) applied to the household survey -CASEN (1993)in order to construct the index. The method solves the statistical challenges as it imposes a metric to the categorical variables that are used to compose the index in order to maximize their contribution to a model of principal components. Empirical results show that this procedure not only selects the most relevant set of variables to discriminate households by welfare, but also provides to each different category a value and an order consistent with economic intuition on consumption and poverty. Finally, the power of SISBEN as a targeting device could be improved by excluding some variables that can be easily misrepresented in order to improve the likelihood of becoming a program beneficiary. JELCodes: D63, H31, H42, H53, J24, J31, O15 Comments welcome at [email protected] An Economic Interpretation of Targeting Systems for Social Programs: The Case of Colombia’s SISBEN By Carlos Eduardo Vélez, Elkin Castaño and Ruthanne Deutsch Introduction This paper provides an economic interpretation of SISBEN – a proxy means test index widely used to select beneficiaries of social programs in Colombia since 1994. It serves as an indicator of households’ economic well being and is based on the application of the Optimal Scaling Algorithm to a cross-section sample of Colombian households collected in 1993. The SISBEN index is a function of a set of household demographic characteristics and variables related to the consumption of durable goods, human capital endowments and current income. SISBEN was created with the intention of simplifying, expediting and reducing the cost of targeting individual beneficiaries of social programs at the various government levels. The system has been very successful and has generated high demand both in municipalities and departments, presumably due to its low cost of operation and also to the social benefits being brought to participating * Velez and Deutsch, from the Poverty and Inequality Advisory Unit at the Inter American Development Bank and Castaño from Universidad de Antioquia and Misión Social-National Planning Department, Colombia. For their comments and suggestions to earlier drafts the authors are grateful to Nancy Birdsall, Nora Lustig and Alfredo Sarmiento and participants at seminars and meetings organized by Mision SocialDepartamento Nacional de Planeacion in Colombia, LACEA/IDB/WBANK Poverty and Inequality Network, and the Poverty and Inequality Advisory Unit at the Inter American Development Bank. We also express our gratitude to Maria Teresa Zarta from Misión Social-DNP for providing valuable data on the implementation of the SISBEN program and to Luis Tejerina at the Poverty UnitIDB for his valuable assistance. 1 SISBEN was developed at Mision Social, Departamento Nacional de Planeacion, Colombia. See Castaño and Moreno (1994) for a presentation of the results and the algorithm of construction. 2 CASEN.