Conditionality and the impact of program design on household welfare: comparing two diverse cash transfer programs in rural Mexico

In this paper, we examine how the design of cash transfer schemes influences household welfare outcomes with particular reference to the influence of transfers on conditioned outcomes, such as schooling, health and investment. We do this by examining two innovative cash transfer schemes initiated by the Mexican government in the last decade: PROGRESA, which is a national antipoverty scheme directed at chronic rural poverty, and PROCAMPO, which is a scheme designed to compensate farmers for the negative price effects of NAFTA. The schemes differ in that PROGRESA is targeted at women and conditioned on schooling and health outcomes and PROCAMPO is generally targeted at men and conditioned on land use. The analysis of data collected for an evaluation of PROGRESA suggest that the overall effects of the programs, as measured by total and food consumption expenditure, are not different. However, PROGRESA leads to greater schooling expenditure and school attendance as well as increased health outcomes. On the other hand, PROCAMPO is found to lead to increased investment in agriculture. The results suggest that conditionality may have little effect in terms of short-term welfare outcomes, but do influence both longer-term (human capital) and medium term (productive) investment. Policy makers must consider both whether or not conditions should be placed on a program, and the type of condition, depending on what they perceive to be the desirables outcomes of the transfer scheme.