Design of Long‐Term Conditional Cash Transfer Program to Encourage Healthy Habits

Noncommunicable diseases (NCDs) are among the largest health emergencies nowadays. Although a large proportion of NCDs can be prevented effectively via good life habits, these remain ubiquitous and one main reason is people's self‐control problem caused by time‐inconsistent, present‐biased preferences. In this situation, we wonder whether a “long‐term” conditional cash transfer (CCT) program, which is known to be effective in shaping people's behaviors but expensive, can be a viable solution. We establish a model which can be fine‐tuned by many parameters, and show that our results are robust in a wide range of parameters. We identify the optimal CCT scheme which helps people achieve their long‐term plan while generating the lowest cash flow. Our results suggest interesting managerial insights like that the amount of necessary financial incentives can depend on people's age, and that the government's optimal CCT scheme does not depend on the level of people's naivete. Also, it is profitable for companies to hold such a program and sell enrollment to customers as self‐commitment devices. However, companies may exploit customers’ naivete to maximize their profit while hurting social welfare. We also examine situations that people's behaviors can only be monitored indirectly through inaccurate signals and that people are heterogeneous in how present‐biased they are.