Questions: Cash Transfers: Conditional and Unconditional

Question 1

Evidence shows that recipients of unconditional cash transfers in Kenya did NOT significantly increase spending on alcohol or tobacco. Which assumption does this finding most directly refute?

• A. That poor households face binding credit constraints preventing investment
• B. That poor households make poor spending decisions when given unrestricted cash
• C. That behavioral conditions are necessary to achieve human capital investments
• D. That monitoring conditions is administratively costly

Answer: (B)

The common 'paternalistic' objection to unconditional transfers is that poor households will waste money on temptation goods. GiveDirectly's experimental evidence directly contradicts this: recipients invest in productive assets, food, education, and health. This supports the case for UCTs where income constraints — not behavioral failures — are the primary barrier to investment. The finding does not address whether conditions are behaviorally valuable (option C), only whether unguided cash is misspent.

Question 2

In a setting where school fees are the main barrier to enrollment, a conditional cash transfer requiring school attendance will produce larger enrollment gains than an unconditional transfer of the same size.

• T. True
• F. False

Answer: False

If the primary barrier is purely financial (fees, uniforms, transport costs), income alone — without a condition — is sufficient to overcome it. Parents who already want their children educated will spend the unconditional transfer on schooling once it is affordable. The condition adds value only when behavioral barriers (present bias, information gaps about returns, social norms) keep enrollment below what the income effect alone would predict. When the problem is purely financial, the condition is costly monitoring with little added enrollment effect.

Question 3

A CCT program that successfully increases school enrollment is necessarily improving long-run welfare more than a UCT of equal size would.

• T. True
• F. False

Answer: False

Even if a CCT increases enrollment more than a UCT, this doesn't establish higher welfare — the UCT recipient has flexibility to address other urgent needs (health, nutrition, shelter) that may have larger welfare effects than the marginal increase in schooling. CCTs also have higher administrative costs, so a nominally equal-size CCT delivers less net cash to households. Welfare comparisons require accounting for all effects across all dimensions, not just the targeted behavior.

Question 4

A government is choosing between a CCT requiring clinic visits and a UCT for the same population where clinic attendance is low. Which factor most strongly favors the CCT?

• A. High government administrative capacity to monitor compliance
• B. Evidence that parents believe clinic visits are not worth the time and travel cost
• C. High transportation costs making clinic access difficult
• D. Credit constraints preventing households from affording food and basic necessities

Answer: (B)

CCTs add value over UCTs when the targeted behavior is underprovided relative to what income alone would predict — i.e., when a behavioral barrier, not a budget constraint, is binding. If parents believe clinics are not worthwhile (information gap or present bias), income alone won't change behavior — the financial nudge of the condition is needed. If transportation costs (C) or credit constraints (D) are the barriers, income unconditionally given solves the problem. High administrative capacity (A) makes CCTs feasible but doesn't indicate whether the condition adds behavioral value.

Question 5

Under what conditions does the behavioral condition in a CCT add measurable value beyond what an income transfer alone would produce, and what is the policy implication?

Model answer: The condition adds value when households underinvest in the target behavior relative to what their income level would predict — specifically when present bias, incomplete information about returns, or cultural norms are the binding constraint rather than pure budget limits. If parents know schooling pays off, can now afford it, and want it, income alone achieves the enrollment gain. If parents heavily discount future returns or underestimate them, the financial nudge of the condition changes the calculus beyond what income provides. The policy implication: CCTs are most valuable when behavioral barriers are measurable and monitoring is affordable; UCTs dominate when financial constraints are primary and monitoring costs are high.

The core insight is that 'not doing X' can have multiple causes: can't afford it, or won't do it even if they could. Conditional transfers address the latter; unconditional transfers address the former. Empirical research distinguishes these by comparing CCT and UCT effects in identical settings — when effects converge, the income effect was sufficient; when CCTs outperform, the condition added something beyond income.