Some economists, with their recent fad for "evaluation", have managed to get themselves deeply confused about what the "conditional" in "conditional cash transfer" (CCT) is really about. They often interpret the "effectiveness" of CCTs relative to the action/behavior/outcome that was conditioned on—for example, the impact of schooling-conditioned transfers on enrollment rates.
But the key question is whether the value of the conditionality in CCT lies in the political symbolism provided by the condition that supports the transfer, or whether the condition has some additional benefits (or what mix of the two).
A policy entrepreneur who wants well-targeted cash transfers will encounter two obstacles. One is meddling politicians who want to manipulate cash transfers, with motives based in clientelism, patrimonialism, or partisan electoral politics. A second is "right wing" political forces who believe that transfers to "the poor" are morally objectionable as they create perverse incentives by reducing the need for work, financing bad habits (drink, tobacco) or otherwise go to the “undeserving” poor.
The "conditionality" of cash transfers is a brilliant symbolic political ploy to neutralize both meddling politicians and right-wing objections. The recipients of CCTs are "deserving" poor because they are (a) chosen by "scientific" criteria like a proxy means test (which therefore cannot be meddled with politically) and (b) the cash transfer isn't just a "handout" but rather the poor have to do something socially valuable to be deserving poor, they have to "invest in human capital."
The role of conditionality in making a well-targeted cash transfer politically feasible might be completely independent of whether the conditionality itself improves recipient household welfare. In fact, conditionality could be valuable from a social welfare function view even if the conditional transfer proved to be less welfare enhancing than a non-conditional transfer. This would be the case whenever making transfers conditional raises the amount and improves the targeting of the politically feasible transfer sufficiently above the largest politically feasible unconditional transfer. One conditional dollar that is politically feasible to deliver might do more social good than an infinite number of unconditional dollars that are politically infeasible to deliver.
In the logic of politically motivated conditions, a policy entrepreneur who wants to raise the well-being of the poor would seek to maximize the symbolic value of the conditioned behavior while minimizing the welfare loss to households of actually engaging in that behavior. The idea would be to pick a behavior with potent symbolic value that nearly all households in the targeted category are doing anyway. This means the welfare loss from the condition is low, since it is already the unconditioned maximizing choice of most households. Notice that in this political logic if an activity with potent symbolism could be found, the optimal "conditioning" would be infra-marginal for nearly all transfer recipients—that is, by design the conditionality would not change most recipients’ behavior.
Of course, another way to think about CCTs is that imposing conditionality has big welfare effects over and above the transfer itself. This is an odd way for economists to think, as the value of the conditionality then depends on changing people’s behavior with a binding condition. This is odd position for economists who are usually an intellectual bastion in favor of choice and against the symbolic appeal of paternalism to those who condescend to the poor. A binding condition only increases a non-paternalistic social welfare function if households are (for some reason) not welfare maximizing already or if there are external effects. Of course many sophisticated arguments could be made about spillovers or information failures or externalities but there has never been any evidence for the magnitude of these effects. Moreover, the condition is often to attend schooling that is already massively subsidized and provided (near) free of charge so that the argument would have to be the externalities/market failures are not sufficiently offset by the existing subsidy—an empirical standard that has never been documented anywhere.
Notice that these two logics create almost directly opposing views on the ex ante design and the ex post evaluation of impact. The political logic suggests creating conditions that are easy to meet but symbolically important so that the “impact” should be small and the “impact” of the conditionality could be interpreted as the welfare loss needed to politically sustain the program. The “economic” logic suggests creating conditions that require behavior change and are not infra-marginal and the “impact” of the conditionality is a measure of the welfare gains from forcing poor people to change their behavior.
The genius of the CCTs in Mexico and in Brazil was not about how to get kids in school but rather about how to use the fact that almost all kids already were in school to generate welfare loss minimizing but nevertheless politically powerful symbolism to expand cash transfers. Many of these transfers were conditioned on the enrollment of children in age groups with near-universal enrollment. (In Brazil in 2001, for example, enrollment at ages 9–12 exceeded 95%.) As a strategy for getting kids into school, as a recent J-PAL note attests, this makes CCTs highly cost-ineffective. Does this make the transfers a silly giveaway or a political master stroke—maximizing the political symbolic value of a cash transfer while minimizing the burden on the recipients of conditions? Ask yourself: What did the designers think?
Miguel Székely, one of the designers of PROGRESA, writes, “The real underlying objective of external donors/investors in some circumstances might not be generating impact, but rather making the statement that they are supporting a particular cause. In such cases, the objective might well be a noble and legitimate one, and the measure of success will be the flow or resources itself, rather than its final impact, but neither the donor/investor nor the executor might have incentives to invest in evaluation.”
In other words, one common narrative—that the scaling up of CCTs is a good example of evidence based policy making because the use of randomization in the design of PROGRESA provided solid evidence that it was an effective program and hence other countries adopted a CCT because of this solid evidence—has it almost exactly backwards. The impact evaluation proved that PROGRESA was cost ineffective if it was considered as a mechanism to increase schooling. Everyone involved in the design knew this. They were not imposing the conditionality to get the behavior conditioned upon, but to get the transfer itself.
What PROGRESA proved that was convincing was about the political effectiveness of conditions to the implementation and supportof cash transfers. Adding conditions to cash transfers allowed a well-designed cash transfer to have political traction against opponents. But this was learned from the experience itself—which is why the Brazilian experience added to the persuasive power of the evidence that adding the conditionality to cash transfers is good politics even though it had no experiment attached.
Ironically, what was really learned from the experience of PROGRESA is that having a rigorous experiment attached to your program can be great politics, as it makes the program seem technocratic and scientific and cool and adds to the symbolic value by demonstrating compliance in attendance (even where that was not an increase versus a counter-factual). This increases your ability to resist partisan political meddling in design and implementation—even if you don’t learn anything particularly special from the experiment.