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Is It Nuts to Give to the Poor Without Strings Attached?

Posted on August 25 2013 by secret santa


"In the past decade it has become increasingly common to give money right to the very poor. After Mexico’s economic crisis in the mid-1990s, Santiago Levy, a government economist, proposed getting rid of subsidies for milk, tortillas and other staples, and replacing them with a program that just gave money to the very poor, as long as they sent their children to school and took them for regular health checkups.

Cabinet ministers worried that parents might use the money to buy alcohol and cigarettes rather than milk and tortillas, and that sending cash might lead to a rise in domestic violence as families fought over what to do with the money. So Levy commissioned studies that compared spending habits between the towns that received money and similar villages that didn’t. The results were promising; 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.

Dozens of countries imitated Mexico’s example and their results inspired the founders of GiveDirectly, a handful of graduate students at Harvard and M.I.T., who were studying the economics of various developing countries. They chose to situate the charity in Kenya because it was a poor country with a well-developed system for sending money to anyone with a cheap cellphone. But they also planned to differentiate their charity; whereas most of the government programs give people money for as long as they qualify, GiveDirectly offers people a one-time grant, spread over the course of several months, and without any requirements."


Responses to objections on cash transfers

  • Objection 1: the case for cash relies on intuition, while the case for bednets and deworming relies on rigorous research. We disagree with this, and have written that the evidence bases for cash transfers and deworming are comparable.
  • Objection 2: the studies used to support the case for cash transfers aren’t applicable to the case of GiveDirectly. For example, key studies were of conditional cash transfers, while GiveDirectly makes unconditional cash transfers. We acknowledge this concern but believe that it does not apply to cash transfers any more than to deworming. In both cases (and to a lesser degree in the case of bednets), there are important differences between the programs that were studied and the programs that are being carried out today, but there are also important reasons not to dismiss the studies that are available. More at the same post linked above: Evidence of Impact for Long-term Benefits.
  • Objection 3: it’s intuitively implausible that $1000 in cash for a single family (much of which is often spent on a metal roof) can do as much good as, say, 200 distributed bednets or 2000 deworming treatments. We believe that a closer study of the evidence behind all three interventions makes the case much more plausible. While we do believe bednets and deworming have strong evidence behind them, the evidence points to very small per-person effects that add up to a lot only when looked at across a large population. (We aren’t confident that deworming’s benefits are non-negligible.) Our cost-effectiveness comparisons imply that bednets and deworming are around 2-5x more cost-effective than cash, which isn’t a large multiplier: if deworming cost $2.50 instead of $0.50, or if bednets cost $25 each, we believe the calculation would weigh in favor of cash transfers (though we would guess that the same intuitive arguments would be voiced).
  • Objection 4: GiveWell concedes that cash transfers are 2-5x less cost-effective (in terms of “good accomplished per dollar”) than bednets and deworming; therefore, there would need to be overwhelming considerations on other factors (such as “upside” and “learning opportunities”) to justify giving to GiveDirectly instead. Broadly speaking, we think this objection overstates the reliability, and importance, of (a) abstract estimates of how much good an intervention does relative to (b) confidence in theorganization and people behind implementation. Aside from the very real considerations of “upside” and “learning opportunities” (discussed briefly here), we think that the details of implementation matter greatly, and we don’t believe it’s wise to be confident in or dismissive of such details when one has little window into them. For more, see
  • Objection 5: giving out cash has more potential to do harm than bednet distribution or deworming programs. We broadly agree with this claim, but we also think that bednets and deworming each have higher probabilities of having negligible positive impact. Because bednets and deworming are very specific solutions to very specific problems, they’re less likely to empower people to do self-damaging things, but also more likely to turn out to be unhelpful if the details of the scenario are different from what our analysis suggests. (To give some specific examples: bednets may be ineffective in areas of high insecticide resistance, and deworming ultimately may have negligible impact overall.) In addition, large-scale government cash transfer programs are widespread and largely well regarded, implying that the scope of any harms that have emerged is limited. More to the point, the evidence we’ve reviewed is designed to capture average total impacts (positive and negative), and (as stated above) we believe that the evidence suggests a positive net impact for cash transfers that is of the same ballpark magnitude as the positive net impacts of bednets and deworming. We also don’t find the specific concerns that have been raised about cash transfers to be highly compelling, especially when juxtaposed with the data from GiveDirectly’s followup surveys.
  • Objection 6: cash transfers have worked poorly, or would work poorly, for the U.S. poor; therefore they are not a promising approach for the developing-world poor. We disagree with this objection and addressed it at length in a previous post, The Case for Cash.
  • Objection 7: cash transfers are inferior to loans, because loans are more leveraged (the money lent is repaid and can be lent again) and because loans encourage productive investment. We discussed these issues in a post entitled Cash Transfers vs. Microloans.
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