09 November 2013


Really excellent stuff from Jishnu Das, tearing apart a recent Economist article on cash transfers:
recall that in welfare economics there are two rationales for government interventions to make people better off. First, governments fix market failures. ... Second, governments redistribute income by giving cash to the poor. ... Within this framework, giving cash always increases the welfare of the recipients; what we also worry about is the extent to which market failures circumscribe the ability of society to do better.
“does giving cash work well” is a well-defined question only if you are willing to say that “well” is something that WE, the donors, want to define for families whom we have never met and whose living circumstances we have probably never spent a day, let alone a lifetime, in. 
Has our hubris really taken us that far? What happened to respect for the poor? 
From there The Economist article degenerates, with “findings” that CCTs “work well” when the conditions are on things that people would not purchase without the conditions (I am serious; cut through the jargon, and that’s what it says). If by now you are tearing your hair out, join the club.
Health is not welfare, neither is education. So, can we please stop making judgments about what poor people should and should not do with money that is redistributed to them?


Ranil Dissanayake said...

Yep. Here's a framework for thinking about this. Everybody (/household) has a budget constraint. When you give someone money, you relax their budget constraint. Assuming they are capable of making reasonable decisions (i.e. not necessarily assuming perfect rationality, but assuming that they don't make horrific decisions, as opposed to ones that might be marginally imperfect), whatever they spend on is their binding constraint to utility maximisation.

Imposing conditions requires that you have an explicitly stated (and hopefully tested) theory that explains why they don't do this. There might be reasons: household politics, or uncertainty or risk-aversion or extremely high discount rates, or issues with who controls money and who benefits from certain investments. But you need to know you think these things, because if you don't then the thing you're conditioning is not a binding constraint and you are imposing sub-optimal outcomes.

A second point here is that you then also have to acknowledge that your conditions is a second best solution to some problem with household or individual decision-making; so the condition should only exist until you can help fix that problem... or your CT should be accompanied by some other intervention, like an insurance market.
The point being that the default has to be unconditional and conditional has a fairly high burden of proof to prove that you are doing something utility increasing for the recipient rather than simply imposing your own prior beliefs or preferences.

Bottom Up Thinking said...

Umm. Yes but in developed countries we also have lots of conditionalities that few people question. E.g. in UK all children must by law attend school (or equivalent) up to the age of 16. Down with those patronising politicians to dare dictate to us in this way! Much better if we can put our children to work now so we can buy a bigger that will generate larger returns for the family in the long run. (Das appears to forget there are significant public goods to be had in a population that is mostly well educated and healthy / properly vaccinated.)

Also is this not another case of an economist naively assuming a perfectly technocratic world without political interference? Of course donors are going to have preferences. These concerns may well be overdone and assume a greater propensity for financial mismanagement on the part of the poor than is fair, and thus deserve some push-back, but you cannot for one moment just wish them away.

Terence said...

"Health is not welfare, neither is education."

nor is cash. Welfare, if you are a utilitarian, is happiness or well-being. And it isn't guaranteed that cash will improve this better than something else (a school, a clinic, a widgit). It might. But that's an empirical question, surely. I can't see what's so heretical about asking whether it does or not, or reporting on research which suggests that sometimes cash grants are not the most optimal means of improving welfare in all instances.

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