While I have been bogged down in the insanity of the middle of the academic semester, reports have kept coming out about the staggering success of unconditional cash transfer programs in Africa. For those of you playing along at home, that means just giving cash to poor people with no strings attached. These have even hit the popular press*, and been emailed to me by non-academics, prompting me to emerge from my involuntary blogging hiatus to offer a few thoughts.
1) These programs have massive benefits. Both the GiveDirectly and Northern Uganda Social Action Fund cash transfer programs are showing increases of around 50% on earnings, several years out, from cash grants in the range of $300-$1000. People I have explained this to commonly leap to the erroneous conclusion that that has something to do with the grants being around 50% of income. Nope – these are impacts on additional income. This implies massive social returns to this kind of investment strategy: Blattman, Fiala and Martinez say they are 40% annually. Amazing.
2) They don’t have the downsides that people often assume they will. One red flag often raised with giving the poor cash is that it will be wasted on alcohol or other addictions, potentially making people worse off. The GiveDirectly RCT looks at spending on these “temptation goods”, and finds no evidence of that.
3) It’s not just white people in rich countries who are worried about cash handouts being wasted. Paolo Abarcar links to a Jishnu Das post about this concern, where he asks “Can we please stop making judgments about what poor people should and should not do with money that is redistributed to them?” I agree totally that this is fundamentally unreasonable – but poor people are worried about these problems themselves. During a conversation I had with a man from rural Malawi, I asked if it wasn’t a better idea to hand out cash to people facing food shortages, instead of trucking in maize to an area that was growing tons of it. He (a potential beneficiary of this program!) was adamant that cash was a terrible idea. People would waste it on booze. Better, he said, to give us maize.
In ongoing research with fellow UM grad student Lasse Brune, we’re taking a radical approach to the question of how to measure whether money is wasted: we’re asking people to decide for themselves. What do they buy in violation of their prior plans and budgets? What do they buy and then regret later? Which things that they bought were spur-of-the-moment purchases, or regretted? Pilot-testing these questions has revealed some surprising choices. Maybe unsurprisingly, though, among the most common selections are alcohol and unhealthy snacks. The possibility that cash transfers might be wasted on temptation goods is a concern not only to Economist readers and international development donors, but also to the very people who stand to receive the cash.
EDIT: Corrected the end of the second-to-last paragraph, which had said “to give us cash”.
2 thoughts on “"Don't just give us cash"”
Good point, Jason. Following what you’re saying, I think how time inconsistent preferences interact with cash transfers might be an interesting line of research.