Should Cash Transfers Come with Conditions?

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Or in other words, do governments know best? Best, that is, for poor people. If so, then adding conditions to a cash transfer alters household behaviour in ways that might help them escape poverty faster. Linking cash transfers to school participation is an example. Conditional cash transfers (CTTs) are on the rise (see this new book by BWPI’s Armando Barrientos and David Hulme, as well as the CPRC Kampala conference on social protection next week).

One view is that households know what’s best for themselves. So adding conditions to cash transfers to poor households is redundant. But collecting information is costly (in both time and money). Therefore households are unlikely to have full information. If so, then conditionality could steer them in a direction that they would go if they were fully informed. For example: Governments are likely to have a better understanding of the benefits of immunization than households, so conditioning the transfer on immunization will help.

Knowing whether conditionality does deliver tangible gains is vital. One reason is that conditionality by its nature implies monitoring, and monitoring has a cost. If conditionality does not deliver a gain then the money spent on monitoring might better go to increasing the size of the cash transfer itself (and even if there is a gain, it needs to be one big enough to justify the administrative cost of imposing conditionality).

So how do we capture the behavioural effect? It’s tricky, because behaviour can’t be directly observed. A new IPC one pager reports on the latest work by Alan de Brauw and John Hoddinott which aims to get around this problem (go to IFPRI for the full paper). They found that some households in Mexico’s PROGRESA (now called Oportunidades) did not receive the forms necessary to monitor their children at school, so their cash transfers were in effect unconditional. Their school enrollment is compared to the (majority of) households who were monitored.

Result? If the household was not monitored then its children were less likely to attend school on average. This effect is significant but modest. However, the absence of conditionality really kicks in when children should be moving from primary to secondary school. School attendance was severely reduced when children were making the transition to lower secondary school. These effects are even stronger when the household head is illiterate. De Brauw and Hoddinott conclude that:

“… debates over “to condition or not to condition” are overly simplistic. In the case considered here, there is clearly little benefit to conditioning transfers based on enrollment in primary school. However, in terms of increased school enrollment, there are large benefits associated with conditioning transfers at entry into lower secondary school”.

Hence, you can get a lot more bang from your CTT buck by focusing in on situations where altering household behaviour has the biggest effects — in this case encouraging more households to send their kids to secondary school.

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5 Responses to “Should Cash Transfers Come with Conditions?”

  1. Jonathan Fox Says:

    Greetings. In the context of the question of whether conditionality influences school attendance, I would add the question of whether increased attendance is associated with increased learning. Little-known findings from the Mexican experience indicate that the increased time in school induced by CCTs is not associated with increased learning – apparently because the “supply side” involving the quality of rural education has not been adequately addressed.

    With regards,

    Jonathan Fox
    University of California, Santa Cruz

  2. Tony Addison Says:

    Jonathan makes a very important point: increased time sitting behind a school desk doesn’t necessarily translate into more literacy, numeracy etc. And that’s assuming that your teacher actually turns up — absentee teachers are a major problem in India, to name just one case. The public school systems of many poor countries are in a shocking state. In Uganda last week we interviewed poor women participating in a BRAC micro-finance group. Their businesses are getting their kids though school — but not Uganda’s state schools: these women overwhelmingly favoured private schools, and were willing to pay. So, as Jonathan says, alongside CTTs we need much better schools — and that doesn’t just mean throwing more money into a badly designed public school system. Root and branch reform of education is essential in many cases.

  3. David Baxter Says:

    I can speak from my own UK experience of a child who could fall into the ‘school refuser’ category – despite having parents who valued education highly. Institutional objectives only work if they coincide with family objectives – and what the child sees as important – the latter is particularly important in terms of what the child actually learns. Because society thinks that children should go to school, it cannot believe that some children do not want to go – and that nothing short of physical violence will get them there.
    Part of the problem is that statistically some approaches may be better than others, but it still needs to be accepted that they are not universally successful – something which the ‘advanced’ nations like the UK have yet to accept, as testified by the numbers of children who are excluded – or worse, abandoned to highly variable ‘alternative provision’ which simply gets them out of the school’s hair.
    The first question is whether the Victorian European schooling system as exported round the world by Empire is the best way – or the only way – of imparting the knowledge and skills that children will need in life.

  4. Tony Addison Says:

    Thanks David. Yes, the quality of schooling makes a HUGE difference as to whether children want to go to school or not — and whether they benefit when they get there. As you say we need many different types of educational model for different types of society. One reason why conditional cash transfers might have more merit in poor societies, is that parents are likely to have the least information on the benefits of education — especially if they live in very remote disconnected communities, and cannot experience first hand the opportunities their children might have if they had a better education than their parents. But its also essential to reduce the opportunity cost of schooling (as economists say) to encourage less child labour, and more school attendance.

  5. J Says:

    All of the above comments are constructive, but the conditions affect the family as every family has its own way of doing things. We can not be brought under one solid rule. Flexibility matters because we have different destinies.
    However, this program might work well in developing countries mostly in Africa because I have lived in that area for long time and knows some people need effective programs as long as they have no income burden. Every place will need a program according to the needs.

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