Defining the target population
CCT programs target poor households that under-invest in the human capital of their children. The first practical step in CCT program design is to define the criteria for eligibility based on poverty. What is the “right” targeting method? Who qualifies as poor? These challenges arise in the design of any social assistance program that seeks to maximize its poverty alleviation impact for a given budget. CCT programs have used a combination of methods, particularly geographic and proxy-means testing.
Defining who is under-investing in human capital is more difficult. Typically, once a household satisfies the poverty criteria, CCT programs define eligibility on the basis of the age of children. Using a narrower demographic approach to target poor households may be more efficient in terms of the program human capital goals. For instance, by targeting children transitioning from primary to secondary schools, or those with young children in regions with high malnutrition rates a CCT program may be targeting those with the highest potential for improving human capital. But in some cases, this may impose a trade-off with the redistributive goals of the program as other households in poverty may be excluded from participation.
There is growing evidence that CCT impacts on human capital outcomes are larger among poorer households. In other words, tighter poverty targeting is expected to maximize the CCT impact on human capital accumulation.
In Nicaragua’s CCT program, school enrollment for 7-13-year-old children in 1st to 4th grades was 25 percentage points for the extremely poor, and 14 for the poor. Programs targeting the extremely poor are expected to have a larger average effect on enrollment.
Selecting the appropriate conditions and the size of the transfer
The first step in selecting the “right” conditions for a CCT program is a review of the evidence on the links between the use of certain services and the ultimately desired outcomes.
For example, is getting children to health centers the best way to achieve broad improvements in their nutrition and health? Or is giving mothers nutrition and parenting information/training more effective?
Another possibility is to condition the cash transfer on achieving an actual outcome—especially when links between service use and outcomes are complex or unknown, but outcomes are judged to be mostly within the beneficiaries’ control.
Small-scale pilot programs could, in future, look at experimenting with schemes such as adding a performance bonus to the basic payment given for satisfying school attendance.
A second question is how to set the appropriate transfer amount. In general, the “right” transfer amount is likely to depend on the relative importance given to the program’s redistribution and human capital goals, and is likely to vary across outcomes and settings.
Setting entry and exit rules
Effective program design also requires carefully considered rules of entry and exit. This helps avoid confusion among prospective beneficiaries and reduces the potential for manipulation and abuse. Entry and exit rules are also important because they can have unintended incentive effects, particularly related to labor force participation.
Some potential solutions include the use of time limits on benefits (as in Chile), and the adoption of graduated benefits—where households that are no longer eligible under the original criteria receive reduced benefits rather than face complete loss of benefits.
Deciding on complementary services
In many developing countries, the delivery of health and education services is dysfunctional. Poor infrastructure, absenteeism of teachers or health care providers, and inadequate supplies are not unusual.
To successfully build human capital, CCTs alone are not enough. Health and education services will also need to be adapted. In some cases, this implies providing a service where none existed. In others, it means improving service quality. Some governments have tried to do improve quality by offering performance incentives to service providers.
Sometimes, a CCT, even in combination with high-quality services, is not enough to remedy disadvantages at the household level. In Ecuador, children from the poorest two nationwide wealth deciles who are just entering 1st grade are already behind where they need to be in terms of cognitive development.
CCTs thus need to be complemented by programs that give children a head start at an early stage, such as via better nutrition or preschool programs.
Mexico’s Oportunidades and other CCTs have tried to expose parents to new information and practices by also conditioning transfers on participation in talks known as plácitas. However, a more comprehensive program that relies on the involvement of social workers may also be needed.