To Condition…Or Not to ConditionMiguel SzékelyJune 27, 200606-27-II.aThird International Conference on Conditional Cash TransfersIstanbul, TurkeyJune 26-30, 2006Difficult to answer open Difficult to answer open question question Rather, ask:Rather, ask:• Whereto condition?• Whento condition?• Howto condition?Answer: it depends on Answer: it depends on CostsCostsandandBenefitsBenefitsatat• a Particular Place• a Particular Time• in a Particular FormContents1.- Why even consider conditionality?3.- Conclusions2.- Laying out pros and consIncome transfers have been Income transfers have been used for more than a centuryused for more than a centuryWhy does conditionality come Why does conditionality come into the picture now?into the picture now?The Economics of ConditionalityThe Economics of ConditionalityThe poor cannot accumulate assets to break the The poor cannot accumulate assets to break the poverty cycle, because they are subject to:poverty cycle, because they are subject to:Three constraints• Low income = Survival constraint• High marginal propensity to consume• No access to credit for long term (high return) investments• High risk – high frequency savings only, and no long-term asset accumulationThree implications• Liquidity constraint• Insurance constraint= lack of insuranceIn a world of free choice and working markets, a pure transfer makes sense, because the poor know besta) What they needa) What they needb) When they need itb) When they need itc) How they need itc) How they need itHowever, little solid evidence that pure transfers lead to long term poverty reduction in developing countries, mainly because 1. Unintended secondary effects1. Unintended secondary effectsa) Adverse labor supply reactions with long term effectsa) Adverse labor supply reactions with long term effectsb) Creation of dependency (paternalism)b) Creation of dependency (paternalism)c) Little asset creationc) Little asset creationd) d) ““NegativeNegative””incentives to improve longincentives to improve long--term conditions term conditions by beneficiaries (risk of nonby beneficiaries (risk of non--eligibility)eligibility)2. Timing2. Timing--sustainability:sustainability:a) Limited credibility of sustained support (enough to a) Limited credibility of sustained support (enough to create changes in behavior)create changes in behavior)b) Political cycles change selection of beneficiariesb) Political cycles change selection of beneficiariesc) Political cycles bias towards short term high visibility c) Political cycles bias towards short term high visibility actionsactionsOne option is to provide the One option is to provide the cash, cash, but in a way that it changes but in a way that it changes relative prices (and behavior) relative prices (and behavior) within the householdwithin the householdi.e. artificially bias toward i.e. artificially bias toward ““high high returnreturn--long runlong run””human capital human capital investmentinvestmentContents1.- Why even consider conditionality?2.- Laying out pros and cons3.- ConclusionsThe question is whether the The question is whether the costscostsof imposing of imposing conditionality, are lower than conditionality, are lower than its its benefitsbenefitsat a particular space and timeat a particular space and timeConsCons• Higher profile of schools and clinics helps improve infrastructure• Gives a new structure and sense to services provided anyway• May serve as self-targeting mechanismProsPros• Administrative costs:a. Fixed cost of having infrastructureb. Marginal cost of verifying compliance• Logistically complicated, requires institutional capacity• Over burden work in schools & clinicsOperationalConsCons• Public funds from social assistance to social investment (asset creation)• Makes poverty reduction less costly in the future• Externalities for the rest of the economic system• Empowers women (with different utility function than men)• Lead to other virtuous circles (production, savings)ProsProsEconomic• Limits choice (the poor know best what they need)• New family costs:a. Direct (transport, opportunity cost)b. Indirect (changes optimal distribution of time for other rewarding activitiesc. Limits choice of providers• Over burdens women• May be expensive (large enough to change behavior)ConsCons• Policies that “help the poor help themselves”may get more public support (median voter)• Enhances transparency & accountability• Helps build credibility with positive feedbacks to other interventionsProsProsPolitical• Not popular to ask for something in exchange (vs paternalistic approach)• Not popular to be strict • Creates new instruments of political control (political conditionality)• Gives more power to certain actors (groups of teachers, doctors)• Subject to corruptionConsCons• The poor become active partnersrather than only recipient beneficiaries• Empower the poorProsProsEthical• Anti-ethical to make the “deserving poor”pay a cost• Conditionality means “distrust” and implicitly discriminates against the poorContents1.- Why even consider conditionality?2.- Laying out pros and cons3.- ConclusionsConclusions 1. There is evidence that in some settings, 1. There is evidence that in some settings, conditionality transforms social conditionality transforms social assistance into social investmentassistance into social investment2. However, it is still not possible to 2. However, it is still not possible to generalize (depends on generalize (depends on costscostsand and benefitsbenefitsin each particular circumstance).in each particular circumstance).3. Need for new impact evaluation that 3. Need for new impact evaluation that isolates effect of conditionalityisolates effect of
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