Development Economics

The Silver Bullet of Conditional Cash Transfers

There is a new paper from DFID (the British overseas development assistance authority) about the usefulness and effectiveness of conditional cash transfers.  I have written a few times about this topic in early 2011 and way back when in 2010 (see here and here) and have always been pretty bullish on the use of them as tools for poverty alleviation.  Conditional cash transfers effectively pay the poor in exchange for meeting certain requirements regarding healthcare and education.  Welfare programs for individuals and families are contingent on achieving certain targets.  For achieving a certain school attendance rate for children, a family will receive a certain amount of money.  For bringing your child to the doctor a certain number of times per year, you get money from the government. The advantage of these schemes is that they offset the opportunity cost of keeping your child in school, or the actual cost of bringing your child to the doctor.  So, by creating incentives around behavior modification, you can more effectively target the root causes of poverty.  Good decision-making becomes in the best financial interest of families, and mitigates the costs of neglect. What they do not address are systemic problems.  For example, within education, conditional cash transfers aren't going to build more schools, improve teacher training, reduce class sizes, or provide additional jobs for people once they get out of school.  Nor will they improve the quality of healthcare delivery or the caliber of physicians.  This gives some people pause.  This is from the report:

Well-designed and implemented cash transfers help to strengthen household productivity and capacity for income generation. Small but reliable flows of transfer income have helped poor households to accumulate productive assets; avoid distress sales; obtain access to credit on better terms; and in some cases to diversify into higher risk, higher return activities. These intermediate outcomes help draw poor people into the market economy on terms that allow them to benefit from and contribute to growth.… There is robust evidence from numerous countries that cash transfers have leveraged sizeable gains in access to health and education services…However, transfers have had less success in improving final outcomes in health or education.  Cash transfers can help the poor overcome demand-side (cost) barriers to schooling or healthcare, but they cannot resolve supply-side problems with service delivery (e.g. teacher performance or the training of public health professionals). Cash transfers therefore need to be complemented by ongoing sectoral strategies to improve service quality.
The whole notion of a silver bullet is a non-starter for me.   (more…)

Development Economics

Are Conditional Cash Transfers Really the Answer?

[caption id="" align="alignright" width="300" caption="Genius"][/caption] A while back I wrote about conditional cash transfers, which are the next biggest thing in development, in a post called "Where's My Money, Fool," titled so as an homage to the curler-wearing drug dealer Big Worm in the movie "Friday." The most successful example of a good CCT program is Bolsa Familia, a government program in Brazil which has helped to increase incomes for poor families by 7 times as much as incomes for the rich (albeit, off a lower baseline).  Brazil has seen its poverty level drop faster than Snooki inside a plastic Zorb-like ball in the Jersey Shore on New Years Eve.  Specifically, the number of people living in poverty has dropped from 22% to 7% over the last decade. The theory behind conditional cash transfers is simple.  The government pays poor families for meeting certain requirements.  Attendance in school and maintaining standards of healthcare are rewarded with monthly payments.  As long as the family achieves the targets of the program, they are eligible for a payout.  The outcome is two-fold.  First, the family gets immediate relief in the form of cash payments from the government, which can be put toward food and education.  Second, the underlying conditions that cause the unbreakable cycle of poverty to unbroken - lack of education due to the demands of meeting financial needs for the household - are addressed, as financial incentives eliminate the need to pull kids from school to help their parents earn income for the family.  An explanation from the New York Times:

The program fights poverty in two ways.  One is straightforward:  it gives money to the poor.  This works.  And no, the money tends not to be stolen or diverted to the better-off.   Brazil and Mexico have been very successful at including only the poor.  In both countries it has reduced poverty, especially extreme poverty, and has begun to close the inequality gap. The idea’s other purpose — to give children more education and better health — is longer term and harder to measure.  But measured it is — Oportunidades is probably the most-studied social program on the planet.  The program has an evaluation unit and publishes all data. There have also been hundreds of studies by independent academics. The research indicates that conditional cash transfer programs in Mexico and Brazil do keep people healthier, and keep kids in school.

Development Economics

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. [caption id="attachment_1185" align="alignright" width="300" caption="Playin' with my my money is like playin' with my emotions."][/caption] 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.” (more…)