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…)