Where's My Money, Fool: Conditional Cash Transfers

In this journal, I have discussed the different structural problems that a country faces in improving things like education, healthcare, and the economy overall.  A strong education system requires an adequate number of schools and teachers.  Likewise, good public health programs need to provide reasonable access to doctors and medical facilities.  Also, for healthcare in particular, people need to be educated about nutrition and preventive measures to avoid costly hospitalizations down the road.  But even with all of the components in place, not everyone will avail of these services.  Some people will choose to be the proverbial non-drinking horse, though usually out of necessity rather than willful ignorance.  That is because there is an opportunity cost to sending kids to school – if the child is working or watching his siblings while the parents work, going to school means lost income for the family.

Playin' with my my money is like playin' with my emotions.

So even if you have all the tools in place, it still might not be enough to effect the desired change.  One solution to this problem is conditional cash transfers (CCT).  In exchange for doing something, a person receives money.  In other words, you pay them to do the things you want, which happen to be the things that are ultimately in the best interest of them, their family, and country as a whole.  In this case, something means sending your child to school, immunizing your family, or any other behavior that will result in an improvement in “human capital.” In a policy brief from the Asian Development Bank, Hyun Son explains how CCT programs work:

The main requirement of CCT programs is that recipients commit to undertaking certain behavioral changes in return for the transfers, such as enrolling children in school and maintaining adequate attendance levels, getting prenatal and postnatal health care treatments, and encouraging young children to undergo growth monitoring, immunization, and periodic checkups.

So the idea is to incentivize behavior with short-term opportunity costs and long-term financial benefits.  The government will actually pay poor families to send their kids to school.  By compensating the family for lost income, they will be more likely to educate their children.  And by monitoring attendance (usually 80-85% of school days at a minimum) and giving further incentives for achievement (graduation, enrollment in secondary school, etc.), the implementers can track the progress and evaluate how well the program is working.  This is a valuable characteristic in a field where the availability of (statistically) proven results is limited and most successes are anecdotal.

CCT programs have become much more popular in recent years

And these programs do work.  Esther Duflo is one of the founders of the Jameel Poverty Action Lab at MIT.  She is a development economist and one of the pioneers of applying randomly controlled trial techniques (similar to those used by the pharmaceutical industry) to determine the effectiveness of various poverty alleviation programs.  Much of the effectiveness debate in microfinance centers on the research of Duflo and her colleagues.  In an interview with Philanthropy Action (I recommend reading the entire thing), she uses conditional cash transfer programs as an example of an effective poverty alleviation strategy that works well across different environments:

Whereas if you say, I am going to press on this button and see whether it provides this result, you might find there are many things that do work surprisingly well with surprising consistency. So it is not that the world is so incredibly complex that every place needs a unique combination of five factors just to produce anything. I don’t know that we would have been able to say the same thing five years ago, but now we are starting to be in the position to say that a number of things, if well designed, just work pretty well in a lot of contexts.

For example…small subsidies or token incentives to get people to do things (mostly related to health and education) that are good for them but that for some reason do not get done without a nudge. Conditional cash transfer programs or deworming initiatives I would also place in that category.

The impact of CCT is larger on poorer households, which have a higher opportunity cost for the targeted behaviors

Paying parents to send their kids to school is only one part of the solution.  Again, the infrastructure – schools, teachers – must be in place for a program to be effective.  A conditional cash transfer program can improve attendance at school, but it can’t guarantee that the kids will actually learn anything.  In other words, it’s something that needs to be used in tandem with other social programs.  But it is a proven and cost-effective way to achieve results, which makes it a good investment.

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