Unintended Consequences: Managing the Surprising Impacts of Conditional Cash Transfers
By Lennart Reiners
Conditional cash transfers provide immediate financial relief while fostering long-term investments in education and health, helping to break the cycle of poverty. Research reveals both intended and unintended effects that policymakers and project designers should consider.
Conditional cash transfers are direct cash payments to people in need. They are designed to reduce poverty by providing cash transfers to households that fulfill specific conditions. These criteria often revolve around education, such as school attendance, or health, such as prenatal checkups.
By alleviating people’s short-term budget constraints while at the same time incentivizing long-term investments in human capital, these cash payments aim to break the cycle of poverty.
The dual approach of immediate financial relief and long-term human capital investment has made conditional cash transfers widely popular. Early programs, starting in the late 1990s, were implemented in Latin America, with PROGRESA in Mexico and Bolsa Familia in Brazil being notable examples.
Since then, conditional cash transfers have seen widespread adoption globally, often as flagship anti-poverty programs supported by international development finance institutions. In Asia and the Pacific, Indonesia's Program Keluarga Harapan (PKH) is a prominent example of a large-scale program.
Conditional cash transfers are among the most closely studied anti-poverty programs due to their clear objectives, measurable goals, and widespread adoption. Large-scale programs are often informed by small-scale, rigorously measured pilots, which assess the impacts on recipients' health and educational outcomes before being adopted at national scale.
Systematic reviews of existing studies generally find mixed to positive impacts on both short-term and long-term outcomes, further contributing to the popularity of conditional cash transfers.
As new programs continue to be introduced and existing ones run for decades, the associated research grows. Beyond the intended impacts, new data sources and the realization that development policies can have multiple effects have led to a new strain of research.
Cash transfers, especially those with behavioral conditions, influence recipients' actions in expected and unexpected ways, leading to both positive and negative outcomes. Research along these lines sheds light on their broader impact beyond the intended effects.
Given the expense of anti-poverty programs, findings on positive spillover effects can help to justify them, while negative impacts can inform necessary adjustments.
One prominent positive externality observed is the reduction in crime rates, especially in Latin America. As children are increasingly sent to school due to conditional cash transfer requirements, studies have found that gang violence decreases.
These programs make skipping school to engage in violence more costly because recipient households risk losing their cash transfer payments if they don’t fulfill the program’s conditionalities.
Similarly, the programs have been found to decrease child labor and reduce the prevalence of child marriages in rural areas. These are unintended effects, that is, impacts beyond the traditional theory of change of conditional cash transfer programs.
These examples display how there are potential benefits beyond initial project design.
However, negative effects induced by conditional cash transfers have also been observed. One notable example is when parents pay more attention to the child that is targeted by the conditionality of the cash transfer program than their other children who are not targeted.
While school-aged children may feel pressured from increased attention and the need to perform well, older children can also suffer from parental neglect. Another example is the mistargeting of conditional cash transfers, which can produce resentment and other problems in communities.
Although this issue is not specific to conditional cash transfers, the effect can be magnified because these are often flagship poverty programs.
What can we make of these findings? It is crucial to acknowledge that these results can be highly context-specific. In some cases, side effects such as crime vary by region.
That said, awareness of potential externalities can help foster positive examples, while tweaking program design can contribute to mitigating negative ones.
Given the importance of context-specificity, conditional cash transfer interventions should be carefully adapted to the local setting. This approach can help design interventions that avoid negative side effects and inform policy making at an earlier stage.
Understanding a broader set of changes that a policy brings about can also inform cost-benefit analysis, helping to determine which intervention is best suited to achieve set objectives most efficiently in light of scarce resources.
A practical starting point is implementing pilot programs that test for both the intended and potential unintended effects of conditional cash transfers on a small scale. This ensures that scale-up decisions are evidence-based and consider outcomes beyond the primary objectives.
Maximizing the benefits of conditional cash transfers requires understanding both their intended and unintended effects. Evidence-based program design can enhance positive outcomes while minimizing risks, ensuring these interventions are both effective and equitable.
Source: ADB blog
