The Case for Unconditional Handouts to the Poor

No, they don't blow it on booze or drugs -- at least not in developing countries.

Children at the Fkih Tahiri Primary School in Fes on June 1, 2007. ( Rafael Marchante/Reuters)

Morocco is one of the more developed countries in Africa, but only about half -- 56 percent -- of its population can read. Most schools there lack electricity, and many don't even have toilets. Most children living in the country's rural areas start primary school, but about 40 percent drop out before sixth grade. The rudimentary education system makes its mark in the country's test scores: It's ranked 59 out of 69 countries in math and 64 out of 70 on science.

To nudge families to keep their children in school, researchers recently experimented with giving parents in the country's poorest districts small grants of between $8 and $10 per child each month. Some of them were told they'd only get paid if their child attended school regularly, but the others were simply handed money, told nothing, and sent on their way.

Surprisingly, the researchers found that giving out money without any preconditions was more effective than asking families to do something in exchange for their bounty.

"To the extent that conditionality had any impact, it was a negative one," they concluded.

A New York Times magazine story this week explores a similar theme: The rising trend of giving the poor cash transfers -- free money -- and hoping that it results in some positive action, like eating better or going to school or getting medical treatment.

And despite our most pessimistic views of human nature, the Times found that in some cases, it actually works.

Mexico tried something similar on a large scale with its PROGRESA program in the late '90s, doling out handouts to millions of Mexican families. To their surprise, irresponsible parents didn't drink away the funds or fight over the best way to spend it.

Instead, it pretty much just did what it was supposed to:

Researchers found that children in the cash program were more likely to stay in school, families were less likely to get sick and people ate a more healthful diet. Recipients also didn't tend to blow the money on booze or cigarettes, and many even invested a chunk of what they received. Today, more than six million Mexican families get cash transfers.

The difference between PROGRESA and one version of the program tested in Morocco is that the Mexican strategy came with conditions -- parents had to send their kids to school and for regular check-ups. The Morocco program, meanwhile, didn't require them to do anything.

There was, however, some subtle hinting on the part of the Ministry of Education: For the handouts that weren't tied to preconditions, parents were still made to enlist in the program at the local primary school, and it was advertised with flyers decorated with a picture of a child sitting at a desk. The promotion of education was there, even though it was never made explicit.

While both versions of the Morocco program -- conditional and unconditional -- helped boost school enrollment figures, the unconditional grants were even more effective at getting kids enrolled and keeping them from dropping out than the kind that came with requirements. It was also cheaper, since administrators didn't need to keep track of students' attendance.

The program worked largely because it mitigated the families' financial difficulties. The parents had more money, so the children could go learn algebra instead of selling trinkets by the roadside.

But putting conditions on the transfers actually has sort of a chilling effect, one of the study's authors, Pascaline Dupas, said. If parents think there's no way they can keep their kid from having too many absences to qualify, they might never enroll in the program in the first place. Or, their child will drop out of the transfer program (and possibly, out of school) at the first sign that they're racking up too many absences, rather than continuing.

"Many parents overestimate how hard it will be for them to meet the conditionality," Dupas explained. "They think, 'I'm never going to be able to meet it, so I'm not even going to bother trying.'"

The study calls the success of the unconditional transfers, "a nudge rather than a shove."

The Times story profiles a charity called GiveDirectly, which gives cash to impoverished people around the world. The reporter visited a small Kenyan village where residents are using the windfall to do things like buy metal (as opposed to grass) roofs for their houses and or to start motorcycle-taxi businesses.

Sure, they still live without proper roads or infrastructure, and their tiny enterprises will probably never grow beyond one or two employees or $20 a day in earnings.

But it's better than nothing -- and some development economists are starting to think that's good enough.

"People know what they need," writes the Times' Jason Goldstein. "And if they have money, they can buy it."