Methodological proposal for the individual targeting of social programs

This paper proposes a methodology for individually identifying potential beneficiaries of social programs. The methodology consists of two stages. In the first stage, a well-being index is estimated using a method widely employed in the specialized literature: principal component analysis with optimal scaling. In the second stage, cutoff points for the estimated index are determined to identify households that qualify as potential beneficiaries. The calculation of these thresholds is the novel aspect of this study, and it is based on minimizing a function that depends on the targeting errors faced by any social program: infiltration and undercoverage. By way of illustration, using data from the 2007 National Household Survey, estimates for Peru are presented that compare official poverty levels with those estimated using the proposed methodology. (Audio: Department of Economic Publications)