To condition or not to condition

To condition or not to condition? Discussion and references

to-condition-or-not-to-conditionFiszbein and Schady (2009) provide a thorough discussion on when it may be appropriate for cash transfer programs to place conditions on human capital investments. They suggest that conditions may be useful when households underinvest in human capital or when adding conditions increases the program’s political acceptability and sustainability. There are several major reasons that households may underinvest in human capital. Investments may be privately suboptimal due to imperfect information, myopic decision-making, or incomplete altruism of parents toward their children. Incomplete altruism may result from inefficient intrahousehold bargaining outcomes or excessively high parental discount rates in the presence of credit market failures. Even if households invest in privately optimal levels of human capital, this level may still be socially suboptimal due to the presence of positive externalities in human capital investment (Fiszbein and Schady 2009). Despite their benefits, conditioning transfers presents potential problems. These include the possibility that conditions will be too costly for the most destitute households to comply with, in essence excluding them from program benefits, or that the quality of education or health services is too low to provide significant benefits to households. There are also concerns that schools and health centers will not be able to support increased demand created by the CCT, and that the CCT will not have adequate capacity to monitor and enforce conditions. Additional opposition to conditions stems from the belief that the government should not withhold benefits from citizens who are entitled to a state transfer (Fiszbein and Schady 2009).

Recommended references
Those interested in learning more about the rationale for, implementation of, and known impacts of, CCTs throughout the world are referred to Fiszbein and Schady (2009). The authors also highlight how CCTs should work in tandem with other social protection programs. Readers interested in the issues involved in deciding whether to condition cash transfers are also referred to Schüring (2010b). Other key references on CCTs include Das, Do, and Özler (2005), who discuss the tension between equity and efficiency objectives in CCTs as they balance redistributing resources with increasing investments in human capital, and Rawlings and Rubio (2005), who discuss programs and evaluation results for some of the earliest Latin American CCTs.