# 1. How Should We Design Cash Transfer Programs?

## _<mark>Berk Özler</mark>_

<mark>How important is the</mark> _<mark>condition</mark>_ <mark>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.</mark>

## **<mark>In the short run, CCTs produce better human capital outcomes than unconditional cash transfers (UCTs)</mark>**

<mark>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.</mark><sup>1</sup> <mark>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.</mark><sup>2</sup> <mark>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.</mark><sup>3</sup> 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: <mark>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 at changing behavior, as well as judgments on the importance of the desired behavior change versus other important outcomes.</mark>

## **In the longer run, the effects of UCTs dissipate**

> 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).

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