Adding Conditioning to Conditional Cash Transfers

Sean Towles

Abstract: This paper advocates for a rhetorical shift in the theoretical foundations of Conditional Cash Transfer (CCT) programs. CCTs operate by distributing small cash payments to program participants as a reward for achieving human capital goals. These goals usually aim to improve the education and/or health of children. CCTs carry high potential because they 1) reach their intended beneficiaries more directly than other programs, 2) are relatively low cost, and, especially 3) promote behaviors that are thought to be effective at breaking generational cycles of poverty. CCTs have traditionally been organized around economic theories, employing principles of marginal analysis and incentivization. Proponents argue that by internalizing positive externalities associated with the target behaviors, CCTs increase the prevalence of these activities and eventually generate cascading social benefits. This paper does not disagree with this evaluation of the potential of CCTs, but it suggests that CCTs can achieve their generational goals more effectively and completely if they are reorganized around the principles of operant conditioning, as expressed by Behaviorist theories. While economic theory analyzes discrete iterations of individual decisions, Behaviorism recommends procedures for engraining habitual patterns of societal behavior. Behaviorism is, therefore, better suited as the animating theory behind CCTs, the full, long-term potential of which cannot be expressed merely as the sum of repeated market preferences. In most areas relevant to CCTs, the recommendations of Behaviorism are compatible with those of economic theory; the primary benefit that Behaviorism offers in these areas is that the functional mechanisms of CCTs will be more fully understood and more intentionally designed. This paper identifies, however, specific instances in which these theories create divergent policy recommendations. The paper concludes that, especially in these areas, while economic theory still has a role to play as a counterbalance, the primary policy determinant should be the dictates of Behaviorism.

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Conditional Cash Transfers (CCT's) are among a handful of development strategies being deployed and evaluated today. The first CCT's were implemented in Latin America. These include: Mexico's PROGRESA, today re-named as Oportunidades,1 Brazil's Bolsa Familia,2 a recent program in Colombia,3 and a now defunct Nicaraguan program.4 Despite some limitations, including administrative complications and concerns over the equity of denying payment to subsistence level individuals when they fail to meet the conditions, CCT's are universally recognized as cost effective and have almost always shown at least some positive results.5 This widespread acceptance and recognition has spawned diverse structural and administrative models worldwide. One might expect programs that operate based on conditionality to be targeted at "conditioning" participants. This is not, however, the rhetorical justification for CCT's. Instead, CCT's are said to operate based on economic principles. They are thought to be effective because they internalize positive social externalities. This mismatch of economic principles clothed in the language of conditioning misinforms important, ongoing debates about CCT's. This paper seeks to remedy this confusion by discussing a way in which conditionality might be utilized to increase the scope of the social gains attributable to CCT's. Specifically, this paper suggests that CCT's should be restructured around the theory of Behaviorism to improve their generational, long-term effectiveness.

Alan de Brauw & John Hoddinott, Must Conditional Cash Transfer Programs be Conditioned to be Effective? The Impact of Conditioning Transfers on School Enrollment in Mexico, 2-4 (2007). 2 Brazil's Bolsa Familia: How to Get Children Out of Jobs and Into School , The Economist, July 2010. 3 Redesigning Conditional Cash Transfers, J-PAL Policy Briefcase, Feb. 2012. 4 Charity Moore, Nicaragua's Red de Proteccion Social: An Exemplary but Short-Lived Conditional Cash Transfer Programme, International Policy Centre for Inclusive Growth: Country Study, no. 17, Jan. 2009, at 1-2. 5 Natalia Caldes, David Coady & John A. Maluccio, Food Consumption Division of the International Food Policy Research Institute, The Cost of Poverty Alleviation Transfer Programs: A Comparative Analysis of Three Programs in Latin America, 1-2 (2004).

CCT's are designed to build "human capital." In this context, this usually means promoting healthcare and education, especially for women and children. The conditionality is used to create more durable effects. The goal is that within the passage of one or two generations the gains in education and healthcare will have reached a "tipping point" and kickstarted a positively reinforcing cycle of development. Empirical evidence gathered from CCT's suggests that, even in absolute terms, conditionality is more effective at incentivizing behavior than even significant increases in income. A study of Bolsa Familia indicates that adding conditionality to transfers was more effective than doubling the amount of the transfer.6 Though the benefits of using conditionality seem substantial, current conceptions of CCT's still prevent them from reaching their full potential because they are rooted in economic theory. As a matter of economic theory, CCT's increase demand for social services. This should eventually drive increases in the supply of these services, after which subsequent generations can reap the benefits of this infrastructure building. These predictions, however, are not foolproof. In the absence of continued incentives there is no guarantee that demand will continue at the increased levels. Economic theory predicts that this should happen, but these predictions can be undone by instability. This should be concerning, as developing countries tend to be models of instability. A more durable solution would be more desirable. Fortunately, CCT programs could easily be modified by a simple shift in theory. Rather than manipulating people's preferences and desires, a truly powerful tool would be one that manipulates people's habits and expectations by incorporating the principles of operant conditioning. Operant conditioning operates by providing positive reinforcement for desirable behaviors and negative reinforcement for undesirable behaviors, in specific ways, in order to

Bolsa Familia, supra note 2.

shape people's behaviors.7 Operant conditioning itself is largely a clinical theory; the principles of the theory, however, when converted into the realm of philosophy and sociology, compose the theory of Behaviorism. A Behaviorist model of social policy proceeds as follows: 1) "society" defines desirable and undesirable behaviors; 2) policymakers devise mechanisms that reward desirable behaviors and punish undesirable behaviors; 3) the population's responses are monitored and the reinforcement schedule is "randomized"; 4) behaviors that are effectively conditioned are gradually reinforced less often, while those that are conditioned less effectively are reinforced more often, and 5) as the population displays a particular desired behavior the reinforcement mechanism becomes socially "internalized" to maintain a long-run equilibrium. This process could be effectively applied in the administration of CCT's to improve the generational transfer of the incentives they seek to create. This would make CCT's more effective at breaking generational cycles of poverty and would help to stabilize the selfreinforcing cycle that these programs seek to initiate. There are recommendations to be made with regards to each of the five steps in the Behaviorist model; only the most important, which address Steps 2 and 3 in the Behaviorist model, are discussed in this paper. Step 2 contains the core functional mechanisms of CCT's. Behaviorism tells us the reinforcement mechanism must operate at all times.8 CCT's, therefore, will be most effective when participants perceive that they are in the program even when they fail to meet conditions. The ramifications of this statement contradict several suggestions that have recently been offered for improving CCT's.

7 8

B.F. Skinner, About Behaviorism, 51 (1974). Id. at 52-54.

It has been suggested that Oportunidades should focus its attention on incentivizing the transition from primary to lower secondary school; this is where the greatest single drop-off in school attendance occurs.9 Focusing funding on this transition would be more efficient in economic terms because CCT's would not be spending funds on families that would already have sent their children to primary school. In the long-run, however, a program of this sort will not tend to generate self-reinforcing behavior. Participants are likely to view the potential for a large transfer at this juncture as merely a fortuitous windfall. Once the incentive is removed, it is likely that participants will readjust their behavior. If, on the other hand, the transfer mechanism operates consistently throughout the schooling of a household's children it is more likely that people will come to enroll their children in school, year after year, without giving significant thought to the discrete costs and benefits associated with each iteration of this decision. Even so, nothing prevents the amount of the transfer from being varied to address particularly important transitions; the variation simply must not be so great that people view the higher transfers as providing substantively different signals than the standard transfers. It has also been suggested that Oportunidades should improve the efficiency of its targeting mechanism by shifting funds away from participants that would probably have sent their children to school without the incentives and redistributing these funds to more households that are not sending their children to school.10 Here again, Behaviorism suggests that this sharpening of the reinforcement mechanism might be counterproductive in the long run. If only a select few people are enrolled in a CCT program, society as a whole is more likely to view this program as a kind of lottery, rather than as a systematic statement about behavioral expectations society has set for its members. This is especially true if participants are identified by non-

10

Brauw, supra note 1, at 23-24. Id.

transparent methods but are not readily distinguishable from other community members with similar incomes. None of this is to suggest that targeting is unnecessary or undesirable. Behaviorism would simply caution that targeting is not an ethic with unlimited marginal returns. There is a balance point above which inefficiency must be eliminated but below which long-term efficacy is probably reduced. There are also lessons to be learned from comparisons between Oportunidades and Bolsa Familia. Oportunidades may be caricatured as a simple on/off mechanism for comparative purposes. Bolsa Familia, on the other hand, may be caricatured as a graduated CCT program, in which there are a number of different conditions to be met, under different circumstances, and on different periods. 11 There could even be a baseline transfer that is not conditioned. The question becomes which of these structures is more effective. If we look merely at marginal efficiency the on/off mechanism would be preferable. From a Behaviorist perspective, however, this kind of mechanism could be misinterpreted by participants as being a transient mechanism that is not always active. This is not technically the case, of course, but a more stratified system of transfers and conditions would send a more explicit message that participants are continuously being monitored by the program. This supports a perception of continuous commitment to participants, which could engender a reciprocal ethic of commitment. Behaviorism suggests that participants who are aware of the presence of the reinforcement mechanism, even in the absence of the reinforcement itself, will be more likely to internalize changes in their behavior. Even so, if the system becomes so complex that participants no longer understand how their behavior generates reinforcement, conditionality breaks down, undermining the effectiveness of the program. Similarly, if a baseline

11

Bolsa Familia, supra note 2.

unconditional transfer is used, it must not be large enough to allow participants to simply opt for the baseline amount and forego the conditioned transfers. At this point, we must examine Step 3 in the Behaviorist model, because, at first glance, this step seems to contradict some of the foregoing discussion. If rewards are dispersed "randomly," wouldn't this create the lottery perception that was just criticized? Perhaps. But the core concept behind randomization is something more like uncertainty within a framework of conditionality. Randomized reinforcement generates more powerful behavioral modifications because individuals cannot predict when they will and will not be reinforced.12 In response, people engage in a psychological hedging of bets that resembles a gambler's logic. If we don't know which games we will "win," then the only way that we can be sure that we don't miss any opportunities is to play "the right way" every time. If we translate this core principle into our analysis of CCT's we can make some important policy recommendations. Though the regularity of transfers is crucial, variability in the size of the payments and the timetable on which conditions must be met is perfectly acceptable. A CCT program could create this variability by stacking different incentives on top of each other, combining short-term conditions with long-term conditions. Such a program has been experimented with, and the results are precisely what Behaviorism would predict. A Colombian program found that incentivizing yearly enrollment and graduation in addition to daily attendance improved daily attendance, even though the total amount of the incentives was the same.13 It would seem that program participants engaged in the bet hedging that Behaviorism predicts; to make sure that they didn't miss out on the bigger long-term incentives it seems that parents paid extra attention to their children's schooling, even over the course of an entire school

12 13

Skinner, supra note 6, at 64-67. Redesigning CCTs, supra note 3.

career. These results seem to validate the use of a kind of "randomization" in the design of incentives within CCT's, where more predictable short-term transfers are combined with less predictable long-term transfers. As these examples illustrate, it is important to understand the differences between the policy recommendations offered by Behaviorism and economic theory. There are also many other examples, not discussed here, which demonstrate that Behaviorism is not only compatible with the goals of CCT's, but is, in fact, better suited as their primary rhetorical justification. While economic theory analyzes discrete iterations of individual decisions, Behaviorism recommends procedures for engraining habitual patterns of societal behavior. A generational focus is what truly distinguishes CCT's from other development strategies, and use of Behaviorism should distinguish the theory behind CCT's from the economic theory that animates these other strategies. While economic theory still has a role to play as a counterbalance, the core mechanisms of CCT's should be structured around the dictates of the Behaviorist model. A focus on economic theory mischaracterizes long-term behavior as merely the sum of repeated market preferences, rather than giving credit to the considerable force of societal norms and generational patterns of behavior.

References
Alan de Brauw & John Hoddinott, Must Conditional Cash Transfer Programs be Conditioned to be Effective? The Impact of Conditioning Transfers on School Enrollment in Mexico (2007). B.F. Skinner, About Behaviorism, (1974). Brazil's Bolsa Familia: How to Get Children Out of Jobs and Into School, The Economist, July 2010. Charity Moore, Nicaragua's Red de Proteccion Social: An Exemplary but Short-Lived Conditional Cash Transfer Programme, International Policy Centre for Inclusive Growth: Country Study, no. 17, Jan. 2009. Natalia Caldes, David Coady & John A. Maluccio, Food Consumption Division of the International Food Policy Research Institute, The Cost of Poverty Alleviation Transfer Programs: A Comparative Analysis of Three Programs in Latin America (2004). Redesigning Conditional Cash Transfers, J-PAL Policy Briefcase, Feb. 2012.