Jun 1, 2013

Conditional cash transfers, unconditional cash transfers, and energy consumption

. . . [T]he speed at which the poor come out of poverty affects the size of this increase in energy demand, which has important implications for different countries. For example, we show that two countries that are at the same current level of income per capita may have different refrigerator ownership rates, with the country where recent growth was fast having a much higher ownership rate than the country that grew more slowly. Our model also has implications for how poverty alleviation policies such as cash transfer programs affect asset accumulation. Specifically, we show that the rate of the payments should matter for asset acquisition rates. For instance, a program that distributes transfers on a quarterly basis may lead to more refrigerator acquisition than a program that distributes transfers bi‐weekly.
That is from a new paper by Gertler et al. The title is "How Pro-Poor Growth Affects the Demand for Energy" (May 2013). 

The paper looks at the effect of energy consumption as a result of a conditional cash-transfer program. It shows that the program increases asset acquisition, some of which might have a long term effect on economic development - refrigerators. 

Conditional cash transfers usually require the receivers to do something in exchange for the transfer, for example enrolling the children in the household in primary school. This program, conditional transfers, is in contrast with another one: unconditional cash transfers, which is, as its name suggests, just giving money expecting nothing in exchange. 

A new study by Cris Blattman has called a lot of attention to unconditional cash transfers as an effective way to provide aid and promote economic development. This means that probably the best way to help the poor is to give them money, period. From a microeconomic point of view that makes sense because providing cash expands income and allows the receiver to consume a bundle of good of her choice without restrictions. In the area of promoting economic development giving cash, period! could be as revolutionary as microcredit was (at least in terms of its popularity) when it was introduced by Muhammad Yunus in the early 1980s. Micro-lending meant trusting people, poor people! It meant trusting their investment and consumption decisions.  

Giving cash might be also cheaper. You just need to give cash without thinking about all the procedures that implementing a "development program" entails. Precisely because of that we should expect some opposition to unconditional cash transfer as development strategy because it implies, at least a priori, that many people in the aid industry would lose their jobs.

Oh! And, going back to the main topic of the paper I cite above: interesting times comes for the energy industry . . . 

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