A ladder, not a crutch

Using behavioral science in the design of cash transfers can make them more effective in the fight against poverty

April 04, 2019 12:15 am | Updated 02:39 am IST

It’s hard to be ambitious on an empty stomach. (Representational image)

It’s hard to be ambitious on an empty stomach. (Representational image)

There are many legitimate questions about the Congress’s Nyuntam Aay Yojana (NYAY) scheme, which promises to transfer ₹72,000 annually to 20% of families in the poorest of the poor category. But the fundamental soundness of the idea should not be in doubt. Evidence from dozens of cash transfer programmes around the world speaks resoundingly in favour of such schemes as a tool for sustainable poverty alleviation.

Evaluations of cash transfers show that they usually lead to large increases in household consumption, improve health and education outcomes for beneficiaries and their children, and improve women’s agency and empowerment when paid to women. At the same time, common fears, such as that money will be squandered on alcohol or cigarettes, turn out to be largely unfounded. Neither does handing money to the poor make them reluctant to work or be entrepreneurial. Rather, behavioural economists have found that poverty itself makes it harder for people to do things like plan for a future beyond immediate survival. It’s hard to be ambitious on an empty stomach. By freeing people’s minds from having to fret about their next meal, a cash transfer can enable entrepreneurship or more productive employment.

In fact, ideas from behavioural economics are increasingly being used to magnify the already positive effects of giving people cash. In Morocco, MIT economist Esther Duflo and her colleagues found that simply ‘labelling’ a cash transfer as an education transfer can push up school participation. In ongoing research with the World Bank and the governments of Madagascar, Kenya, Ghana, and Tanzania, my colleagues and I are exploring whether it is possible to use the ‘mental space’ that an infusion of cash enables to help beneficiaries use the money they get more productively.

In Madagascar, we asked recipients to develop a plan for how they’d use the cash transfer amounts to further their goals. Eighteen months on, those who received this ‘nudge’ were more food secure, more likely to have invested in livestock, and had higher cash-crop incomes. In another study in Madagascar, we found that helping people visualise how much they needed to save for a goal (example, a new milch cow) and giving them a pouch to set money aside for it increased saving. These designs are now being adapted and piloted in Kenya and Tanzania.

By helping parents invest in the next generation, cash transfers strike at the heart of persistent poverty. Incorporating small behavioural interventions makes the money go even further. If a programme like NYAY takes experimentation, design and evidence seriously, its impact on the lives of India’s poor could be transformative.

The writer is Managing Director, ideas42, a behavioral science research and design firm, where he leads work in the developing world

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