useful data sources, this assumption cannot be empirically verified; however we believe that this work may encourage further research in this field.

# **4. Conclusions**

This paper adds to a large literature on the impact of income transfers and dependency, proposing a transmission mechanism based on distributive aspects. The core of our explanation is based on the alteration of the minimal leisure (MILE) condition, that may lead to changes in the decision making of those individuals who are not originally targeted, but may find convenient to alter their decisions and join the program (dropping work hours).

The theoretical results of this paper argue that even when a project enjoys perfect information and manages to well distinguish between who needs help, there may be some unexpected distributional distortions leading to altering social dynamics and creating dependency.

The empirical literature on this topic is controversial. There is a solid body of anecdotal evidence supporting the “dependency syndrome” generated by social dynamics which are consistent with our explanation. However the empirical literature is still affected by paucity and the body of empirical papers analyzing aid projects’ impact on labor supply and income distribution, especially in low-income countries and extreme poverty scenarios, is not sufficient to define a consensus of the discipline. We would like to add our voice to that of authors who have asked for more research on this field in the hope that it would encourage posing the fundamental questions that are at the center of the development research agenda.

## **ENDNOTES**

i The assumption behind the village size is introduced in order to avoid, in the simplest case, or minimize general equilibrium effects.

ii The assumption on hour wage equality may be sensible considering a context of very poor communities, in which the marginal productivity is generally low and the working hours may make the income difference.

iii With this assumption we do not intend to deny the importance of the research on the effects of in-kind versus cash aid, there is a large and important literature studying these phenomena for example Basu (1996) and Faminow (1995) for a review of this subject. With this assumption we only intend to reduce the degree of complexity and offer a simple analytical framework for studying the distributional impact of aid on microeconomic behaviors.

iv This hypothesis may be realistic for very low income levels (like the village under analysis), in which people's incomes range around the poverty line but do not exceed it by a significant degree.

v Please refer to Andersen, Christensen and Tejerina (2005). vi If the aid program affected vulnerable individuals labor-leisure decision (which given these assumptions can only result in an increase in leisure hours), this would fall within the typical individually-explained dependency theory which is heavily debated in the literature.

> vii The qualitative term simply weighs the person's income relatively to the poverty income. YP was chosen as term because “defines the poverty line by finding the consumption expenditures or income level at which a person’s typical food energy intake is just sufficient to meet a predetermined food energy requirement”, please refer to Ravallion (1992) and to the the World Bank Poverty Analysis page World Bank Page on Poverty Lines. Hence a person who earns less than it ( ) is likely not to “enjoy” this time and simply suffers for longer, or economically speaking enjoying a low quality of leisure, or less leisure quality units. Clearly the weigh will be lower than one if the individual income does not reach the poverty line and be higher than one if it exceeds this indicator. In this way the quality leisure unit measure becomes also an indicator of the individual welfare.

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