In the first part of this blog, I went down memory lane and told you about my teenage years and how my parents had managed to make sure I abstained from tobacco by offering to pay for a high school graduation trip if I did not take up smoking.
You could think that my parents were very naive. Indeed, I could have thanked my dad for the airline ticket, said goodbye and then bought a carton of Marlboro at the duty-free shop. It turns out my dad made the right bet. I never smoked after that trip. But this might have been because most teenagers start smoking before age 18 and if they make it to being smoke-free by that age, the chances that they start later are limited.
More generally, there is one very legitimate question about financial incentives to prevent undesirable behaviors such as unsafe sex and HIV prevention, obesity, smoking, alcohol and drug use: how sustainable are they in the long-term? In other words, will the beneficiaries need to be incentivized life-long or for a long period to choose the safe behavior? In my recent working paper, I look at the limited evidence so far on this question and also consider how different designs can affect sustainability.
Instead of offering positive rewards, harmful behaviors can be taxed. Instead of offering to pay for my trip, my dad could have threatened to “fine” me or cut my allowance each time he caught me smoking. Taking the perspective of a government, obviously taxing undesirable behaviors will bring revenue and is likely to be more cost-effective than financial rewards given to discourage them. Taxes on tobacco and alcohol (and less frequently on unhealthy food) have been called “sin taxes” and presented as “win-win” measures that benefit both public health and the government budget. However, the enforcement of such taxes might be complicated and costly, especially when cross-border purchases and smuggling are potentially important or when the behavior is not easily taxable either because it is illegal (e.g. illicit drugs) or because it is difficult to observe or monitor (e.g. unsafe sex).
The design of financial incentives could also contribute to their sustainability. This could be because specific design features would make them more effective and/or cheaper to implement and scale up. Two types of designs are particularly interesting to discuss: lottery incentives and commitment devices.
Instead of offering cash payments to eligible participants satisfying the conditions, lottery incentives give lottery tickets for entry in a lottery drawing with a chance to win a prize. Usually the prizes would be of higher nominal value than typical cash payments, but in expected value – i.e. taking into account the chances of winning - they could be lower and therefore lead to savings in the reward amounts to be disbursed. Further, when the condition for receiving a reward relies on medical or chemical tests (e.g. an STI, drug, alcohol or tobacco test), procuring and administering those tests constitute a substantial fraction of the program costs. Using a lottery design that first runs a random selection for testing (i.e. the lottery) among all participants and then confirms those participants selected for the tests as lottery winners if they test negative offers substantial savings.
Beyond cost savings, lottery incentives might also be more effective. Introducing a gamble into an otherwise standard financial incentive program has two potential benefits. First, with lotteries, the program becomes relatively more attractive to individuals that are willing to take monetary risks. If the willingness to take monetary risks is correlated with other risky behavior, such as smoking, taking drugs or engaging in risky sex, then lottery incentives may better target those at higher risk of engaging in the undesirable behavior. Second, there is growing evidence from psychology and behavioral economics that people tend to overestimate small percentages, and therefore prefer a small chance at a large reward to a small reward. If so the perceived return from participating in a lottery is higher than the return from an incentive program that pays the expected return with certainty, or in other words lotteries may provide stronger incentives for behavioral change compared to a traditional CCT holding the budget constant.
In their evaluation of lottery incentives for HIV prevention in Lesotho, Björkman Nyqvist and others (forthcoming) provide evidence that individuals with preferences for risk are more likely to respond to a prevention scheme with a high but uncertain return conditional on testing negative for a set of curable sexually transmitted infections. Over two years, HIV incidence was 10.5 percentage points higher for risk-loving compared to risk-averse individuals in the control group. HIV incidence among risk-lovers was however 11 percentage points lower in the intervention relative to the control group.
The principles behind commitment devices are very similar to those at play with conditional cash transfers, with the difference that individuals pledge their own money upfront, as a deposit, and only get it back if they satisfy the condition. From a sustainability point of view, this presents the advantage that the program is, to a large extent, self-funded by the participants who pledge their own money. The voluntary commitment contract to help smoking cessation in the Philippines designed by Giné, Karlan and Zinman (2010) is a good example. Smokers signing the contract pledged their own money that they would be negative in a urine test detecting nicotine and cotinine six months later. After the commitment period, the participants who passed the urine test got their money back. If they failed the test, the bank donated the money to charity. The participants who were randomly offered the commitment contract were more likely to pass the test for short-term smoking cessation than the control group. This effect remained in surprise tests at 12 months, indicating that the commitment device led to lasting smoking cessation.
Finally, let’s ask ourselves whether such incentives make sense in developing countries. It did not escape me that the deal my dad offered me was only possible because I was living in a middle-class family in a rich country. Even if his investment in my health made financial sense (the cost of my trip to Greece was much less than the life-long savings I made by not buying cigarettes on a daily basis, not to speak of the health care costs), most parents, or governments for that matter, could not afford to offer a similar deal to their teenagers. Many of the financial incentives to prevent harmful behaviors have been piloted and evaluated in high income countries except for incentives for safe sex and HIV prevention which have been mainly evaluated in Africa because the threat of HIV/AIDS is highest there. Given the rise of smoking and obesity rates in many middle-and low-income countries, it is however useful to consider how financial incentives for preventing behaviors which are risky to one’s health and well-being could be further applied and tested in developing countries. In addition, the majority of studies reviewed in the paper are small scale (and of course, the example I used about the deal my dad offered me to prevent me from smoking has only one data point…). These types of approaches would need to be replicated and implemented on a larger scale before it could be concluded that such incentive programs, for which administrative and often laboratory capacity requirements are significant, offer an efficient, scalable and sustainable prevention strategy.