Benefit Levels

Transfers and trade-offs

Transfers and trade offsDecisions about the size and frequency of cash transfers require thoughtful analysis. All else held constant, larger cash transfers reach fewer beneficiaries than smaller transfers. However, if transfer sizes are too small, a CT will not have its intended impact and the ratio of administrative to benefit costs will be rather high. Factors to consider when determining transfer sizes include the minimal transfer size that will achieve the program’s stated goals, size of the anticipated pool of eligible beneficiaries, and the program’s budget (Grosh and others 2008). Other important considerations are whether the transfers will be adjusted to keep pace with inflation, how the population of eligible beneficiaries is expected to evolve, and political economy influences. In CCTs and UCTs alike, the influence of a transfer of a particular size on beneficiary behavior will depend on the responsiveness of a given outcome, such as a specific investment in education or health, with respect to the transfer size. Provided that transfer income is treated the same as other household income (that is, it is entirely fungible), ex ante simulations can help determine what transfer sizes are needed to meet program goals. Strong impact evaluations can provide information on how effective various transfer sizes have been in achieving CT objectives and how the CT could be altered if necessary. Deciding on transfer levels is often a recursive process in which data projecting how to fulfill the program’s goals meet head to head with the program’s budget constraints (Grosh and others 2008). Difficult decisions must be made: Should benefit sizes be decreased? How would such a decrease affect expected outcomes? Should transfers be given to a smaller group of eligible recipients? If so, who is in this group, and how should these people be targeted? Other factors to consider are whether transfer size should vary by household size, composition, location, gender of the household head, or other characteristics. When deciding on the frequency of transfer distribution, factors including the cost and timing of distribution and the ability of households to incorporate transfers of a given frequency into their income stream should be considered. When a CT is created to assist rural agricultural households, cash should be distributed at appropriate times in the production cycle so as not to place unnecessary burdens on beneficiaries (Sabates-Wheeler, Devereux and Guenther 2009). For more information on the trade-offs inherent in setting the size of cash transfers, see The Cash Dividend.