As any economist would gladly tell you, people respond to incentives. A recent trend in development initiatives is using incentives to increase educational attainment and other positive human-capital outcomes. Often, Conditional Cash (or food) Transfers (CCTs) are contingent upon parents enrolling their children in school (other popular conditions include proof of medical examinations, and proof that the money is being used on food, medicine, school supplies and other approved purchases). These CCTs are important tools for three primary reasons:

• They limit the opportunity cost of education (foregoing years of paid labor or help on the family farm, business, etc.);
• They are more politically practical and financially feasible than untargeted and unconditioned cash transfers; and
• They incentivize investment in human capital, which will hopefully mean diminished need for similar programs in the future.

Although this post will focus on initiatives in the developing world, it’s worth noting that even here in the U.S. we enact policies to incentivize educational investment as well; in DC, for example, poor and at-risk teens are paid to attend summer school in an attempt to decrease the discrepancy in educational outcomes between the selected students and their more affluent counterparts.

The Mexican CCT program was one of the first and most effective programs of its kind. Progresa (renamed Oportunidades in 2000) was implemented in the late 90’s, and scaled-up in the face of the 2007-2008 food crisis. This program has widely been heralded as a success. Before Progresa, government support was mainly limited to food subsidies and hand-outs which are difficult to target and thus have an unnecessarily large budgetary impact. Progresa/Oportunidades, with its targeted assistance, not only saved the Mexican government money while directing resources to the poorest of citizens, but had the additional (and almost unprecedented) effect of increasing human capital. Importantly, the program incentivizes not just education but also health initiatives (they give food assistance if the beneficiary brings their children to see the doctor on a regular basis). Educational outcomes are always related to health and nutrition status, so incentivizing both reinforces and multiplies the effect that either would have alone.

Although the CCT system has been successful in limiting food insecurity and in keeping kids in school longer, it does have limits and drawbacks. Often, the programs end up putting children into schools that are ill-equipped to educate them effectively. Spending eight hours a day in a classroom isn’t effective if that classroom lacks textbooks and other learning materials, and teachers who will support and motivate the students. Incentivizing education is a great start, but even in situations where the educational system is well established (in DC, for example), incentives are often too little and too late. And while it is often important to recognize that there are limits to the pace that development can occur, it is crucial to bear in mind that with education, the stakes are higher than in most sectors. CCTs are phenomenal, but they need to be supported by investments in classroom and teacher quality. Since education is often the primary means for social mobility, development initiatives should be attacking weaknesses in the educational system from all sides; incentivize teachers to be highly effective, and incentivize students to perform well, and make sure that those projects are backed up by the appropriate learning tools to enable students to achieve. Development efforts will be ineffective and development outcomes unsustainable unless the populations of countries in the developing world are educated to innovate and industrialize for themselves.

-Karis McGill

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