Welfare rationales for conditionality of cash transfers

Titelangaben

Napel, Stefan ; Mookherjee, Dilip:
Welfare rationales for conditionality of cash transfers.
In: Journal of Development Economics. (24 März 2021) . - No. 102657.
ISSN 0304-3878
DOI: https://doi.org/10.1016/j.jdeveco.2021.102657

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Abstract

We study efficiency and distributional effects of conditioning transfers on educational investments by parents, in an OLG model with missing financial markets and heterogeneity of learning ability. Conditional cash transfers (CCT) can be designed to generate a Pareto improvement relative to either laissez faire, or unconditional transfers such as universal basic income proposals. This applies irrespective of whether the status quo involves underinvestment or overinvestment in education from a first-best perspective, or the nature or extent of parental altruism towards children. The CCT corrects a market failure of insurance and lack of consumption smoothing for parents with respect to random realizations of ability of their offspring.