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Welfare rationales for conditionality of cash transfers

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  • Mookherjee, Dilip
  • Napel, Stefan

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 and 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.

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  • Mookherjee, Dilip & Napel, Stefan, 2021. "Welfare rationales for conditionality of cash transfers," Journal of Development Economics, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:deveco:v:151:y:2021:i:c:s0304387821000365
    DOI: 10.1016/j.jdeveco.2021.102657
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    2. Angelina Shpilevaya, 2022. "Overview of General Equilibrium Models with Imperfect Financial Markets and the Accumulation of Human Capital," Russian Journal of Money and Finance, Bank of Russia, vol. 81(3), pages 54-71, September.
    3. Tao Tang & Lizeth Cuesta & Brayan Tillaguango & Rafael Alvarado & Abdul Rehman & Diana Bravo-Benavides & Natalia Zárate, 2022. "Causal Link between Technological Innovation and Inequality Moderated by Public Spending, Manufacturing, Agricultural Employment, and Export Diversification," Sustainability, MDPI, vol. 14(14), pages 1-25, July.
    4. Bryan, Gharad & Chowdhury, Shyamal & Mobarak, Ahmed Mushfiq & Morten, Melanie & Smits, Joeri, 2023. "Encouragement and distortionary effects of conditional cash transfers," Journal of Public Economics, Elsevier, vol. 228(C).
    5. Subarna Banerjee & Gitanjali Sen, 2024. "Persistent effects of a conditional cash transfer: a case of empowering women through Kanyashree in India," Journal of Population Economics, Springer;European Society for Population Economics, vol. 37(4), pages 1-38, December.

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