1. The MCC Incentive Effect Quantifying Incentives for Policy Change in an Ex-post Rewards System Prepared for the Millennium Challenge Corporation by : Ingrid Aune Yanyan Chen Christina Miller Joshua Williams -- Spring 2013 --

2. The Team and the Outline Ingrid Aune Yanyan Chen Christina Miller Joshua Williams 1. The MCC Incentive Effect and Our Data2. Preliminary Analysis3. Models and Analysis4. Conclusion and Recommendations

3. Previous Quantitative Studies Johnson and Zajonc (2006) Öhler, Nunnenkamp and Dreher (2010) Previous Studies Data: Third-party sources Indicators used Quasi-experiment Our Study

4. Data Economic Freedom Investing in People Ruling Justly Indicator Categories Qualitative MCC Incentive Effect Close to Passing or Failing the Indicator Threshold The Control of Corruption Standard Threshold Partnership Middle Range of Government Expenditures Treatment Groups

5. Indicator Mobility Source: Authors’ Calculations Top 10 Rank Change

6. Correlation between Indicators Size is proportional to Correlation Critical Value = 0.3

7. Correlation between Indicators (continued) Size is proportional to Correlation Critical Value = 0.3

8. Plausible Conjectures of Treatment Groups

9. Preliminary Analysis: Locally weighted scatter plot smooth (LOWESS) Positive MCC Incentive Effect Treatment: Close to Passing or Failing

10. Neutral/Mixed MCC Incentive Effect Preliminary Analysis: LOWESS (continued) Treatment: Qualitative MCC Incentive Effect

11. Negative MCC Incentive Effect Preliminary Analysis: LOWESS (continued) Treatment: Middle Range Government Expenditures

12. Difference-in-Differences Difference in scores between two years Difference between two time periods Difference between control and treatment Differences Rate of Reform Likelihood of Improvement Proportion of Indicators Improved Models

13. Overview of General Model Results All Results: 38 (+) and 31 (-)

14. Select Statistically Significant Results: TreatmentModelIndicator Time Period 2004-20062006-20082008-2010 Qualitative MCC Incentive Effect Rate of Reform Cost to Start a Business 53.3** (26.94) Cost to Register Property 1.205** (0.601) Trade Freedom -5.690* (3.188) Likelihood of Improvement Regulatory Quality 0.429*** (0.146) 0.456*** (0.144) Threshold Partnership Rate of Reform Time to Register Property -24.41* (14.45) Depth of Credit Information -0.657** (0.330) Economic Freedom

15. TreatmentModelIndicator Time Period 2004-20062006-20082008-2010 Qualitative MCC Incentive Effect Rate of Reform Girls' Primary Education Completion 7.215*** (2.762) Immunization Rate -4.504** (2.224) Likelihood of Improvement Girls' Primary Education Completion 0.353** (0.166) 0.487*** (0.164) 0.366** (0.178) Threshold Partnership Rate of Reform Primary Education Expenditures 0.911** (0.373) Health Expenditures -4.678** (2.127) -5.614*** (2.134) Immunization Rate -5.453** (2.540) Likelihood of Improvement Health Expenditures -0.459*** (0.165) -0.435** (0.166) Investing in People

16. TreatmentModelIndicator Time Period 2004-20062006-20082008-2010 Qualitative MCC Incentive Effect Rate of Reform Civil Liberties 1.566* (0.878) Political Rights 2.398** (1.146) Voice and Accountability -0.117** (0.0575) -0.213*** (0.0579) -0.181*** (0.0579) Likelihood of Improvement Political Rights 0.366** (0.139) Control of Corruption 0.278* (0.148) Voice and Accountability -0.295** (0.145) -0.442*** (0.142) -0.324** (0.145) Threshold Partnership Rate of Reform Civil Liberties 2.307** (1.006) Political Rights 2.443* (1.335) Rule of Law -0.124** (0.0611) Likelihood of Improvement Control of Corruption 0.427** (0.170) Political Rights 0.284* (0.168) Rule of Law -0.357** (0.177) Ruling Justly

17. Number of Results in Economic Freedom (Breakdown)

18. Number of Results in Investing in People

19. Number of Results in Ruling Justly

20. Number of Positive and Negative Results Different Time Periods Economic FreedomInvesting in PeopleRuling Justly

21. Conclusions and Recommendations Lack of quantitative evidence for the MCC incentive effectNewer and stronger documentation of the effects in the data Improved treatment groups Insight on indicator categories Separate study of lower-income and lower-middle-income countries A new road-map:

22. Recommendation to the MCC Create Aspirations Publish the ranking each country has for each indicator and overall. Cut the number of indicators, particularly in the Ruling Justly category. Increasing transparency by setting three or five year plans for indicators. Provide Knowledge and InformationSeparate Countries by Income Groups

23. Questions

24. Acknowledgements Professor Melanie Manion, University of Wisconsin-Madison Andria Hayes-Birchler and the people at the Millennium Challenge Corporation Andrew Lambert and the staff at the La Follette School of Public Affairs Daisy Bui Chung and the students at the La Follette School of Public Affairs We would like to thank the following people for help on this presentation: