Incentives improve aid efficacy: The case of the Generasi community block grants

A community-based performance-incentivized grant program shown to improve health has reached 3.7 million women and children in Indonesia

Indonesians participate in their community block grants meetings and decision-making process as part of Generasi, 2007 (Komar |

Enabling local communities to allocate development funds to programs and activities that best meet community needs could more effectively improve outcomes for the neediest individuals and avoid wasteful spending. Providing performance bonuses based on communities’ past success at improving health and education outcomes is one way to make social spending even more effective. Research by J-PAL affiliate Ben Olken along with Junko Onishi and Susan Wong has shown that community block grants linked to performance were more effective in improving maternal and child health outcomes than non-incentivized grants in Indonesia.

The Scale-Up: Based on evidence from a randomized evaluation by a J-PAL affiliate and colleagues, the Government of Indonesia moved exclusively to incentivized grants.

In 2010, the Government of Indonesia committed to increasing funding for an incentivized community block grant program that has reached 3.7 million women and children in approximately 5,400 villages annually over four years. The program is being implemented specifically in areas with limited access to health and education services and where stunting is prevalent.

The Problem: What are the best ways to design performance-based aid programs? 

Recently there has been an increased drive among governments, international organizations, and NGOs to strengthen the link between development aid and performance. While linking aid to performance may create incentives to improve effort and mobilize additional resources, there are potential downsides as well. For example, communities or individuals may reallocate effort toward targeted indicators at the expense of other goals. There is also a risk that performance-based aid will drive budgets to be directed to richer or otherwise better-performing locations.

In 2007, the Indonesian government began a pilot program to test community-based block grants, a new approach to improving health and education. Under the program, known as Generasi, villages received annual block grants which they could allocate to activities improving 12 health, nutrition, and education indicators. The 12 indicators represented activities that were within direct control of villages—such as the number of children who receive immunizations, prenatal and postnatal care, and the number of children enrolled and attending school—rather than long-term outcomes, such as test scores or infant mortality.

The Research: Community block grants improved health and education in Indonesian villages, and adding performance incentives sped up improvements in health.

J-PAL affiliated researchers and colleagues worked with the Government of Indonesia’s Ministry of Home Affairs to evaluate the effectiveness of Generasi as it was being rolled out in villages across the country. In some randomly selected communities, a portion of the subsequent year’s grant was allocated based on their relative performance on 12 health, nutrition, and education indicators. Researchers found that health indicators improved more for incentivized communities than for non-incentivized communities, particularly in less developed provinces, but found no effect of incentives on education. In total, between 50–75 percent of the impact of the block grant program on health indicators can be attributed to the performance incentives.

"Drawing on a growing body of international evidence… the project provides an incentives-based scheme to increase demand for tools to reduce stunting, while improving the health sector’s capacities to respond to increased demand." 
-United States Embassy, Indonesia. November 2011

From Research to Action: Building an evaluation into the program design enabled researchers to engage the government at all stages and resulted in rapid scale-up of the research pilot.

Following the Government of Indonesia’s decision to scale up incentivized block grants within Generasi, the US Government’s Millennium Challenge Corporation (MCC) signed a US$600 million compact with the Government of Indonesia to fund projects to reduce poverty. Quoting the results of the Generasi evaluation, MCC has pledged over US$130 million of the compact to support the next phase of Generasi, including revising the program to further target stunting and nutrition outcomes, which were identified as priorities by the Government of Indonesia. The revised program, known as Generasi Plus, reinforces the community incentives system originally piloted under the Generasi program, and adds performance incentives for individual service providers to ensure that the supply of health services will meet communities’ demand. An evaluation component will focus on measuring household level impacts, as well as the effect of incentives for communities and health workers.