How should we design cash transfer programs?

What key insights have emerged from development economics in the past decade, and how should they impact the work of the World Bank? A new working paper Toward Successful Development Policies: Insights from Research in Development Economics from the Bank’s research department captures 13 of the most significant insights in the world of development economics.

Here’s insight #1 on how to design cash transfer programs:  

How important is the condition in accounting for the impacts of conditional cash transfer (CCT) programs? Is it a waste of time and resources to monitor and enforce conditions, when simply giving out the cash with no strings attached would do an equally good – or perhaps an even better – job in reducing poverty in the longer-run? The answer to this question is not straightforward, but over the past 15 years research has generated a fair amount of evidence that provides useful insights for policy makers.

In the short run, CCTs produce better human capital outcomes than unconditional cash transfers (UCTs)

CCTs outperform UCTs for intermediate participation indicators (e.g., school enrollment or visits to health centers) and, to a lesser extent, human capital outcomes (e.g., learning achievement or health indicators). For example, in a Colombian CCT program, children subject to the conditionality requirement had 50% more preventive visits and had improved health compared with children excluded from the requirement.¹ Similarly, two experiments conducted by World Bank researchers in Burkina Faso and Malawi found that CCTs had significantly higher impacts on school enrollment, dropout, and test scores than UCTs – even taking the additional administrative costs of CCTs into account.² A systematic review of CCT and UCT programs finds that the effect sizes on school participation increase as the conditions are made more explicit, monitored, and enforced.³

However, there may be immediate trade-offs between CCTs and UCTs. The same experiment in Malawi found that UCTs substantially outperformed CCTs in improving psychological well-being and reducing teen pregnancy and child marriage rates. This empirical finding, also supported by theory, has implications for the design of cash transfer programs: CCT programs create incentives for individuals to change their behaviors by denying transfers to those who do not satisfy the conditions. However, at least some of these individuals come from vulnerable households and are equally in need of income support. UCTs to such households can improve important outcomes, even though they are not as successful in improving the desired outcomes targeted by CCTs. Hence, while CCT programs may be more effective than UCTs in obtaining the desired behavior change, they can also undermine the social protection dimension of cash transfer programs. Comparing the overall welfare effects requires estimates of how effective CCTs are atchanging behavior, as well as judgments on the importance of the desired behavior change versus other important outcomes.

In the longer run, the effects of UCTs dissipate

While there are few long-term studies of unconditional cash transfers, the available evidence suggests that their short-term effects are not sustained. Sometimes, this may be because the transfers put beneficiaries on an earlier/accelerated growth path than non-beneficiaries, with the two groups converging over time.⁴ In other cases, unconditional cash transfers end up being palliative, meaning that they improve outcomes while the income support is in place, but fail to cause sufficient accumulation of human (or other forms of) capital to alter long-term outcomes.⁵ In such cases, UCT beneficiaries end up back at square one soon after the cessation of transfers.

One exception to this finding might be in lasting improvements in the health and nutrition of children in beneficiary households. Several recent studies have found that children who are exposed to unconditional cash transfers in utero and between the ages of 0 and 5 (the earlier the better) are substantially less likely to be stunted.⁶

Longer-term evaluations of CCT programs offer room for optimism. A number of longer-term evaluations of CCT programs indicate that while they might improve school attainment among adolescent beneficiaries, evidence of longer-term gains in terms of learning, employment, and income are mixed as they become young adults.⁷ However, recent studies are finding evidence of promising longer-term gains. Examples include a forced savings treatment attached to a traditional schooling CCT program in Bogotá increasing tertiary enrollment and graduation; a CCT program in Malawi and a secondary school scholarship program in Ghana causing large gains in school attainment and substantial reductions in fertility among vulnerable female beneficiaries; Nicaragua’s CCT program leading to substantial gains in learning among boys and reductions in fertility and increased economic activity among girls 10 years after they were exposed to the program as early adolescents; and a school-based intervention in Kenya that provided school uniforms finding significant reductions in school dropout, pregnancy, and marriage among girls in the short- and medium-run; and school attainment, marriage, and childbearing by age 16 in the longer-run.⁸

How cash transfers are targeted and delivered are important program design elements

Recent studies suggest that cash transfers can cause declines in life satisfaction and reductions in psychological well-being among nonbeneficiaries who live in the same communities as program beneficiaries.⁹ Cash transfers can cause prices of non-tradable or perishable goods to increase in remote areas with weak links to markets, while in-kind transfers can have the opposite effect of reducing food prices.¹⁰ A recent World Bank study of the Philippine CCT shows that such effects can have real consequences: price increases in protein-rich perishable food items caused substantial increases in stunting among nonbeneficiary children.¹¹ Hence, it is important for the World Bank and governments implementing large-scale transfer programs to pay attention to spillover and general equilibrium effects.

These findings have several implications for World Bank policies:

• A potentially promising way of resolving the trade-off between CCT and UCT programs is to view them as complements to each other rather than alternatives. Policy makers could provide a basic unconditional cash transfer to, say, adolescent females or poor households, topped up by conditional cash transfers for human capital accumulation and desired health behaviors – providing an incentive to invest in education and health while still guaranteeing a basic level of protection to those who are unable or unwilling to comply with program conditions.

• The promising evidence of the positive effect of UCTs on children’s height provides an additional reason to consider providing basic UCTs to adolescent girls and young women. Indeed, other researchers in the U.S. context have suggested that targeting transfers towards women of childbearing age would be beneficial, to maximize benefits to children in utero. This form of targeting of young women would suffer from remarkably little ‘leakage’ in many countries in Sub- Saharan Africa, where the median ages at first childbirth are below 20. It would also have the added benefit of reducing fertility rates.

• The increasing popularity of “cash plus” programs, which involve cash transfers being delivered with complementary services/interventions, seems justified. For example, recent evidence from multifaceted anti-poverty programs suggest complementarities between various program components, including cash transfers.¹² A program in Bangladesh that combined a behavior change communication nutrition intervention with cash transfers through women’s groups that met regularly found beneficial impacts on several important domains for beneficiary women and their children.¹³

• Finally, more attention should be paid to the targeting of large cash transfer programs. Failing to consider the local market price effects of CCT (or UCT) programs can overstate the net benefits of targeted cash transfers. In areas where individual targeting of social programs covers most of the households, offering the program on a universal basis would avoid such negative impacts at moderate, if any, additional cost.¹⁴

1 Attanasio, Orazio P., Veruska Oppedisano, and Marcos Vera-Hernández. 2015. Should Cash Transfers Be Conditional? Conditionality, Preventive Care, and Health Outcomes. American Economic Journal: Applied Economics, 7(2): 35-52.

2 Akresh, Richard, Damien de Walque, and Harounan Kazianga. 2013. Cash Transfers and Child Schooling: Evidence from a Randomized Evaluation of the Role of Conditionality. Policy Research Working Paper No. 6340. World Bank, Washington, DC.; Baird, Sarah, Craig McIntosh, and Berk Özler. 2011. Cash or Condition? Evidence from a Cash Transfer Experiment. Quarterly Journal of Economics 126 (4): 1709-1753. Baird, Sarah, Craig McIntosh, and Berk Özler. 2019. When the Money Runs Out: Do Cash Transfers Have Sustained Effects on Human Capital Accumulation? Journal of Development Economics, Vol. 140, Sep. 2019, pp. 169-185.

3 Baird, Sarah, Francisco HG Ferreira, Berk Özler, and Michael Woolcock. 2013. Relative Effectiveness of Conditional and Unconditional Cash Transfers for Schooling Outcomes in Developing Countries: A Systematic Review. Campbell Systematic Reviews 9 (8).

4 Blattman, Christopher, Nathan Fiala, and Sebastian Martinez. 2018. The Long-Term Impacts of Grants on Poverty: 9-Year Evidence from Uganda's Youth Opportunities Program. American Economic Review: Insights, forthcoming;- Haushofer, Johannes and Jeremy Shapiro. 2018. The Long-Term Impact of Unconditional Cash Transfers: Experimental Evidence From Kenya. Working Paper.

5 Baird, McIntosh, and Özler (2019), cited above.

6 Agüero, Jorge, Michael Carter, and Ingrid Woolard. 2006. The Impact of Unconditional Cash Transfers on Nutrition: The South African Child Support Grant. SALDRU Working Paper Series No. 06/08.; Barham, Tania, Karen Macours, and John A Maluccio. 2013. Boys' Cognitive Skill Formation and Physical Growth: Long-Term Experimental Evidence on Critical Ages for Early Childhood Interventions. American Economic Review 103 (3): 467-471; Cahyadi, Nur, Rema Hanna, Benjamin A. Olken, Rizal Adi Prima, Elan Satriawan, and Ekki Syamsulhakim. 2018. Cumulative Impacts of Conditional Cash Transfer Programs: Experimental Evidence from Indonesia. NBER Working Paper 24670. National Bureau of Economic Research; Baird, McIntosh, and Özler (2019), cited above.

7 Baez, Javier Eduardo and Adriana Camacho. 2011. Assessing the Long-Term Effects of Conditional Cash Transfers on Human Capital: Evidence from Colombia. IZA Discussion Paper No. 5751.; Behrman, Jere R, Susan W Parker, and Petra E Todd. 2011. Do Conditional Cash Transfers for Schooling Generate Lasting Benefits? Journal of Human Resources 46 (1): 93-122; Filmer, Deon and Norbert Schady. 2014. The Medium-Term Effects of Scholarships in a Low-Income Country. Journal of Human Resources 49 (3): 663-694; Araujo, M Caridad, Mariano Bosch, and Norbert Schady. 2016. Can Cash Transfers Help Households Escape an Inter-Generational Poverty Trap? NBER Working Paper 22670. National Bureau of Economic Research; Cahyadi et al. (2018), cited above; Molina-Millan, Teresa, Karen Macours, John A. Maluccio, and Luis Tejerina. 2018. Experimental Long-term Effects of Early Childhood and School-age Exposure to a Conditional Cash Transfer Program. Working paper.

8 Barrera-Osorio, Felipe, Leigh L Linden, and Juan E Saavedra. 2017. Medium- and Long-Term Educational Consequences of Alternative Conditional Cash Transfer Designs: Experimental Evidence from Colombia. NBER Working Paper 23275. National Bureau of Economic Research; Baird, McIntosh, and Özler (2019), cited above;- Duflo, Esther, Pascaline Dupas, and Michael Kremer. 2017. The Impact of Free Secondary Education: Experimental Evidence from Ghana. Unpublished Manuscript. https://web.stanford.edu/~pdupas/DDK_GhanaScholarships.pdf; Barham, Tania, Karen Macours, and John Maluccio. 2019. Experimental Evidence from a Conditional Cash Transfer Program: Schooling, Learning, Fertility, and Labor Market Outcomes After 10 Years. Working Paper; Duflo, Esther, Pascaline Dupas, and Michael Kremer. 2015. Education, HIV, and Early Fertility: Experimental Evidence from Kenya. American Economic Review 105 (9): 2757-97.

9 Baird, Sarah, Jacobus De Hoop, and Berk Özler. 2013. Income Shocks and Adolescent Mental Health. Journal of Human Resources 48 (2): 370-403; Haushofer, J., Reisinger, J., & Shapiro, J. (2019). Is Your Gain My Pain? Effects of Relative Income and Inequality on Psychological Well-being. Working Paper.

10 Jesse M Cunha, Giacomo De Giorgi, and Seema Jayachandran, 2019, The Price Effects of Cash Versus In-Kind Transfers, The Review of Economic Studies 86 1): 240–81.

11 Filmer, Deon, Jed Friedman, Eeshani Kandpal, and Junko Onishi. 2018. Cash Transfers, Food Prices, and Nutrition Impacts on Nonbeneficiary Children. Working Paper.

12 Banerjee, Abhijit, Dean Karlan, Robert Darko Osei, Hannah Trachtman, and Christopher Udry. 2018. Unpacking a Multi-Faceted Program to Build Sustainable Income for the Very Poor. NBER Working Paper 24271.

13 Ahmed, Akhter, John Hoddinott, and Shalini Roy. 2019. Food Transfers, Cash Transfers, Behavior Change Communication and Child Nutrition: Evidence from Bangladesh. Working Paper; Roy, Shalini, Melissa Hidrobo, John Hoddinott, and Akhter Ahmed. 2019. Transfers, Behavior Change Communication, and Intimate Partner Violence: Post-Program Evidence from Rural Bangladesh. Review of Economics and Statistics, forthcoming.

14 Filmer et al. (2018), cited above.