Inter-American Dev Bank - Capacity Building Project

1. 1
Economics of Cash Transfer Programs: Helping PoorEconomics of Cash Transfer Programs: Helping Poor ““onon
conditioncondition””
Sener SalciSener Salci
Dept. of Economics- QueenDept. of Economics- Queen’’s University, Canadas University, Canada

2. Outline of Talk
1. Introduction
2. Cash Transfer Programs
3. Cost and Benefits of Conditional Cash Transfer (CCT) Programs
4. Methods for Economic Evaluation of CCT Programs
5. Economic Evaluation of Mexico’s Oportunidades CCT Program
6. Introduction of Spreadsheet Model for Cost-Effectiveness Analysis
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3. Introduction
Disparities in education, health and nutrition (human capital) exist between
poor and rich. Labor is the primary resource of the poor.
Current consumption of poor families is paid for from labour income.
Poor families often take their children out of schools at early ages so that they
can generate additional income for their family from employment.
Although returns to capital are high for poor, the families cannot invest/spent
“enough” on human capital for their children resulting in inter-generational
transmission of poverty (Banerjee and Duflo, 2011; Behrman et al. 2004).
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4. Incidence of Poverty in LAC, 2011 Estimates
Source: World Bank, Poverty & Equity Data, 2011
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5. Policy Objectives
Policy objectives are to implement social assistance
programs aiming to:
•provide immediate cash to poor, and alleviate poverty
through the transfer of cash grants.
•Encourages long run development of human capital and
promote social development.
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6. Cash Transfer Programs
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Q: Give money to poor
or provide goods and
services?
Maria Nilza, age 36, and
mother of four children,
showing her "Bolsa Familia"
social plan card in Serra
Azul, located in north of
the state of Minas Gerais in
Brazil.
Source: The Guardian, November
2010 Photograph: Vanderlei
Almeida/AFP/Getty Images

7. Cash Transfer Programs,cont.
Long-term microeconomic intervention recipes in reaching the
poor
•Conditional Cash Transfer (CCT) Programs
o give a monetary transfer conditional upon the receivers’ fulfilling
behavioral - co-responsibilities
o Programs found mostly in Latin America and Caribbean (LAC)
since the late-1990s, mostly implemented nationwide
•Unconditional Cash Transfer (UCT) Programs
o provide cash to all eligible registered beneficiaries
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8. Cash Transfer Programs, cont.
The CCT Wave (WB, 2009, p. 4)
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9. CCT Beneficiaries in LAC, by Country (2001-10)*
Source: Stampini and Tornarolli (2012, p. 10)
* Number of CCT beneficiaries as of 2010 represents / covers about 25% of the population in LAC.
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10. Design of CCT Programs
Increasing the country’s social welfare by offering incentives at the right level for the
right households on the concept of obligation on the part of beneficiaries
1.Who will benefit from CCT Program? Who is considered to be poor?
otargeting the population (beneficiaries) for intervention using socio-economic
data (e.g. eligibility criteria based on household level tests such as proxy mean
test, income test, or community assessment)
1.What will be the scale of the programme, and how frequent will be the
cash transfers and how will beneficiaries receive the cash transfers?
odetermine size, duration, type and method of payment of cash transfers
ofinding effective way to distribute cash to poor (e.g. bank debit, cash collection
points, via mobile phones)
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11. Design of CCT Programs
3. What are the responsibilities of beneficiaries?
o set the minimum conditionality (requirements) to receive cash transfers
o linked to objective of the programs and targeted population; eg.
beneficiaries’ attention to the education, health, and nutrition of their
children
o planners might apply some modifications to improve effectiveness.
4. Provide cash to beneficiaries and monitor the beneficiaries
o provide cash to poor (payees are almost always the mother) if they
comply with the conditions.
o monitor the program (monthly, bi-monthly…) and verify compliance,
apply penalties for noncompliance with conditions
Source: Adato and Hoddinott, 2010 11

12. Design of CCT Programs
Practical challenges in the implementation of CCT programs:
targeting, conditionality, size of grants
availability of supply of services, and provision of services to meet the increased
demand (i.e. children attendance to school and distance to school, opening hours
of health centers and health center visits)
Sources: Das et al. 2005; Bastagli, 2010; Gantner, 2007; EPRI 2011
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13. Cash Transfer Programs, cont.
Expansion of conditional cash transfers
CCT Models have spread because:
1.They address the “intergenerational transmission of poverty”
2.They provide “some” income security for poor and improve income
distribution
3.They encourage parents to invest in the health and education of their children
(to enhance productivity and improve their employability)
These are the main objectives of CCT programs and economic benefits
rationale for the implementation of CCT programs.
Source(s): See Fiszbein and Schady (2009); Baird, McIntosh, and Ozler (2011); Akresh, Walque, and
Kazianga (2012), for review of literature educational impacts, see Baird et al. (2013).
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14. Issue of wasting money on “temptation
goods”
Allocation of cash benefits in household consumption goods
• Poor women do control the cash provided and spend for higher consumption
of proteins (milk, meat, eggs), cereals, increased number of meals, improved
quality of food and children’s clothing.
• Based on empirical evidence, poor make the right decisions in their private
spending from cash transfers, no evidence of misuse of resources such as
additional consumption of “temptation goods” such as alcohol or cigarette.
• Might increase households’ investments on assets, ownership of animals,
land, and other forms of small assets
Source: Evans and Popova, 2014; Covarrubias et al. 2012
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15. Costs and Benefits of CCT Programs
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16. Estimation of Costs
Program Costs
• Administrative costs associated with the delivery of cash transfers to households:
conditionality, targeting costs at the household level and operation costs
o these costs depend on program size and the size of these costs also change
over time (Coady, 2000, p. 99)
o delivering cash benefits to reach rural dwellers is more cost-effective than
allocating goods.
Private Costs
• costs that households incur in order to receive cash transfers: time and financial
costs of travelling schools, health clinics and collect the cash benefits from
collection centers (e.g. costs borne by woman, see Parker and Skoufias, 2000;
Coady, 2000)
• initial costs of obtaining certifications required for the program: national identity
card, proof of residency, and traveling costs to and from program offices.
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17. Quantification and Estimation of Benefits
What are the impacts?
1.Educational impacts including increased school enrollment and
attendance, decrease in drop-outs, improved exam test results
2.Health impacts including the use of health services for preventative care,
and improved nutritional status
3.Multiple impacts (e.g. impacts of free school meal on kids)
4.Additional costs from implementing the program such as increase in
teacher salaries from increased enrollment, and increase in health costs
from additional hospital visits
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18. Quantification and Estimation of Impacts (Benefits)
How big / small are these impacts?
1.The data for impact study might be conducted in a randomly
selected intervention and control communities.
2.Use data from studies based on randomised controlled trials
(RCT) or cluster-randomised controlled trials (C-RCT) (e.g.
Gertler, 2000, Barham, 2005), or regression results from
regression discontinuity (e.g. Levy and Ohls, 2007).
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19. In the very long-run, economic benefits of lowering poverty from increased
employment potentially might:
•Increase the levels of trust, civic participation and support for democracy (WB,
2012)
•Lowers the participation in riots, crime and conflict (creates positive externality
for non-poor as well) (Becker, 1968; Ehrlich, 1973; Grossman, 1991)
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Non-quantifiable Impacts

20. Heterogeneity in Benefits
•impacts might vary based on socioeconomic status of
households (i.e. different income levels of treatment
groups)
•impacts might vary based on location of poor households
(i.e. rural and urban treatment groups)
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Estimation of Impacts (Benefits)

21. Incremental Impacts based on Socioeconomic
Status: Case of Nicaragua
Source: Maluccio and Flores, 2005
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22. CCT Programs are “more effective” in Rural
Areas than Urban Areas
Source: The Economist, July 2010
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23. Are these CCT programs cost-effective
and efficient?
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24. Methods for Economic Evaluation of CCT
Programs
A. Focusing on the relationship between inputs, outputs and
impacts, with monetary values or desired outcomes attached to
them:
•Cost-Benefit Analysis (e.g. education, Brent, 2013)
•Cost-Effectiveness Analysis (e.g education, Dhaliwal, Duflo, Glennerster, and
Tulloch, 2012, Belli, 2001)
B. How well are inputs converted to outputs:
•Cost-Efficiency (e.g. Coady et al. 2005; Caldés and Maluccio 2005; Caldés et al.
2006)
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25. Cost-Benefit Analysis (CBA) Cost-Effectiveness Analysis (CEA)
-Used when benefits are quantifiable and can
necessarily be expressed in monetary terms but
with assumptions about the monetary values of
benefits.
-Used when benefits are quantifiable but cannot
necessarily be expressed in monetary terms and
only one outcome measure can be used. .
-Ability to handle programmes with multiple
outcomes but it is difficult to create a single cost-
benefit analysis that would be useful for a wide
range of organizations.
-Possible a comparison of multiple programmes
evaluated in different contexts and in different
years – useful for policy decision making that
aimed at achieving the same objective.
-Exclusion of non-monetized benefits that they
may be socially desirable, especially in health and
education intervention projects.
-User what can be achieved for what cost and
leaves it to the user to decide whether that benefit
is worth the cost, with trade-offs across
alternatives.
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Methods for Economic Evaluation of CCT Programs
Sources: Dhaliwal et al. 2012; McEwan, 2012; White et al. 2013

26. Cost-Effectiveness Analysis (CEA)
McEwan, 2012
Assumptions
1.improved health does not contribute or contribution is negligible to increased school attendance
(separability of education and health impacts from national household surveys)
2.incentives are given separately, solves the problem of multiple impacts of program (incentives to
attend school, incentives for nutrition)
Cost Effectiveness in Education: include only the costs of the education subsidy in the cost-
effectiveness analysis (exclusion of quality of learning)
Cost Effectiveness in Health (Cost-Utility): include only the costs of the health incentive in the
cost-effectiveness analysis
Separating out the CE analysis for education and health will also necessitate the distribution of the
program costs and private costs for each intervention.
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27. Mexico’s Oportunidades (PROGRESA)
Program
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28. Source: Paes-Sousa, Regalia and Stampini, 2013, p.8
(*) Data from WB, 2009, p.16. Total households represents 60 % of households in the bottom
decile of per capita expenditures (WB, 2009, p.75) – successful targeting.
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About 70%
rural, 16%
semi-urban
and 14%
urban
coverage*

29. Oportunidades “keeps more children at
school”
Education Benefits
•Improvement in Primary School Enrollment: 1.5% girls and 1.1.% boys (Schultz, 2001),
Secondary School: 9.3% girls and 5.8% boys (Skoufias, 2005)
•Increased the probability of entering secondary school by 33%.
•Nearly doubled enrollment for upper secondary education.
•Children who participated on average 5.5 years achieved an extra year of schooling (WB,
2009, p.112).
•Question with the quality of schooling. Is more schooling mean more learning?
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30. Oportunidades “feeds poor families better and
helps poor to live healthier”
Health Benefits
Increase in food consumption, reduction in morbidity and malnutrition
•significant effect at increasing child growth child growth – up to 16 percent – and reducing child
stunting for children aged 12 to 36 months and children age <=5 years old had a 12 percent lower
incidence of illness than non-Oportunidades children (Gertler, 2000)
•increased the number of prenatal visits in the first trimester of pregnancy by 8 percent, food
expenditures in PROGRESA households were 13 percent higher than in non-PROGRESA
households, with PROGRESA households consuming higher-quality foods and more calories,
children aged 12–36 months were on average one centimeter taller than non-Oportunidades children
(Gantner, 2007)
•children age <1 year old vaccinated 1.6% more for tuberculosis and age > 1 year but <2 years have
vaccinated 2.8%more for measles than non-Oportunidades children (Barham, 2005)
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31. Oportunidades households “earn more”
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Notes: (i)Table is cited from WB (2009, p. 113), original source of information presented in Spanish, see
Parker, S., Behrman, J. (2008), (ii) Values are in US$, conversion: 11 Mexican pesos = 1 USD
(iii) benefits are net benefits excluding opportunity costs and includes only education component, (iv)
The analysis values the benefits from program in the form of increased future earnings that result from
additional years in schooling, excluding other impacts such as household consumption and improved
health and nutrition status on future earnings)

32. Cost- Efficiency in CCT Programs
(CaldÈs, Coady, and Maluccio, 2004)
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33. 33
Cost- Efficiency in CCT Program, cont.
(CaldÈs, Coady, and Maluccio, 2004)

34. 34
Cost-Efficiency in CCT Program, cont.
(CaldÈs, Coady, and Maluccio, 2004)

35. 35
Cost- Efficiency in CCT Program, cont.
Results for Mexico
Sources: CaldÈs, Coady, and Maluccio, 2004, p. 26, 30

36. CEA - Impacts of CCT on Education
(Dhaliwal et al. 2012)
• Total Impact of Program = Impact (per unit) × Sample Size × Program
Duration
o When there were differential impacts (heterogeneity) on different
proportions of the population (see e.g. previous slide) and those impacts
occurred at different times, then this calculation requires more work.
• Results are presented based on aggregate impacts (aggregating costs and
impacts across all beneficiaries / total impacts) rather than the cost cost-
effectiveness ratio per beneficiary (per beneficiary / the impact per
beneficiary)
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37. • The Ingredient Method – Incremental Costs of Intervention
o What is every single ingredient necessary for this program to have the
observed impact?
o How much of each ingredient is needed?
o How much does one unit of this ingredient cost?
o When is this ingredient used?
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CEA - Impacts of CCT on Education
(Dhaliwal et al. 2012)

38. 38
CEA - Impacts of CCT on Education
(Dhaliwal et al. 2012)

39. • The program was analyzed from the perspective of 2010 in USD.
• The discount rate used was 10 percent.
• Exchange rate was standard and inflation was calculated using GDP deflators.
• Results are presented based on aggregate impacts (aggregating costs and
impacts across all beneficiaries / total impacts) rather than the cost cost-
effectiveness ratio per beneficiary (per beneficiary / the impact per
beneficiary).
• Integrate the impact assessment study from Coady and Schultz (1997) for
PROGRESA Mexico (later names as Oportunidades)
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CEA - Impacts of CCT on Education
Assumptions

40. @ 90% confidence interval Impact on Outcome*
Lower Bound 0.02
Point Estimate 0.03
Upper Bound 0.04
40
Source: Dhaliwal et al. 2012, p. 10 and p.19
(*) outcome represented in primary school attendance, based on study conducted by Coady and Schultz
(1997), and time frame is 4 years
CEA - Impacts of CCT on Education
Results
ADDITIONAL YEARS OF SCHOOLING PER $100 SPENT
RANGES BASED ON 90% CONFIDENCE INTERVAL OF PROGRAM IMPACT

41. Case Impact on Outcome*
Including costs to beneficiaries (base) 0.03
Excluding costs to beneficiaries 0.03
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Source: Dhaliwal et al. 2012, p.29
(*) outcome represented in primary school attendance and time frame is 4 years, and values are
discounted at the end of years.
CEA - Impacts of CCT on Education
Sensitivity Results
SENSITIVITY OF COST-EFFECTIVINESS TO BENEFICIAR’S COST
ADDITIONAL YEARS OF SCHOOLING PER $100 SPENT

42. 42
CEA - Impacts of CCT on Education
Sensitivity Results
Source: Dhaliwal et al. 2012, p. 34

43. Discount Rate (%) Impact on Outcome*
5% 0.032
10% 0.031
15% 0.031
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Source: Dhaliwal et al. 2012, p.41
(*) outcome represented in primary school attendance and time frame is 4 years, and values are
discounted at the end of years.
CEA - Impacts of CCT on Education
Sensitivity Results

44. 44
Exchange Rate Impact on Outcome
Standard Exchange Rate 0.03
PPP Exchange Rate 0.02
Source: Dhaliwal et al. 2012, p.45
SENSITIVITY OF COST-EFFECTIVINESS TO EXCHANGE RATE
ADDITIONAL YEARS OF SCHOOLING PER $100 SPENT
CEA - Impacts of CCT on Education
Sensitivity Results

45. How about assessment of health impacts?
CEA and Health Impacts (Cost-Utility Analysis)
A. Disability Adjusted Life Years (DALYs)
B. Quality-Adjusted Life Years (QALYs)
Q: DALY averted rather than QALY gained (?)
Reading Source with Background Papers and Applications in health: WHO
GUIDE TO COST-EFFECTIVENESS ANALYSIS, World Health
Organisation, 2003
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46. Study conducted: Baird, S., Ozler, B. and McIntosh, C., 2011. Cash or Condition? Evidence from a
Cash Transfer Experiment. Quarterly Journal of Economics, 126, p.1709-1753
Model Presented: Dhaliwal, I., Duflo, E., Glennerster, R., Tulloch, C. December 2012. Comparative
Cost-Effectiveness Analysis to Inform Policy in Developing Countries: A General Framework with
Applications for Education. Abdul Latif Jameel Poverty Action Lab (J-PAL), MIT
Also, read McEwan, P.J., 2012. Cost-effectiveness analysis of education and health interventions in
developing countries. Journal of Development Effectiveness, 4(2), p. 189–213
Malawian Program of Conditional Cash Transfers, targeted at adolescent girls in Malawi, from
available in worksheets provided in this link:
http://www.povertyactionlab.org/doc/cea-data-full-workbook
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Introduction of Spreadsheet Model for Cost-
Effectiveness Analysis (CEA) for a typical Cash
Transfer Program