Panel Paper: The Impact of Cash Transfer Programs On Discount Rates and Expectations: Evidence From Zambia

Thursday, November 8, 2012 : 4:00 PM
Hanover B (Radisson Plaza Lord Baltimore Hotel)

*Names in bold indicate Presenter

David Seidenfeld, American Institutes for Research and Sudhanshu Handa, University of North Carolina, Chapel Hill

This paper investigates the effects of an unconditional cash transfer program on psychological outcomes including expectations of the future, discount rates, and self assessed quality of life.  These outcomes are linked to important behavior change for investing, saving, and avoiding unnecessary risk.  Although cash transfer programs have been evaluated for over 17 years all over the world, as far as we know, these outcomes have never been tested before in a cash transfer context, making these findings a unique and important contribution to the field. 

We use data from a three year impact evaluation of Zambia’s cash transfer program in Monze district (2007-2010).  The Monze cash transfer program targets labor constrained and destitute households.  Beneficiary households receive the equivalent of $8 or $10 per month depending on if the household has children, in which case they receive the higher amount.

The study design for the Monze impact evaluation is a quasi-experimental design with random assignment at the community level and selection at the household level, requiring a matched comparison group.  We employ a quasi-experimental propensity score matching approach for defining a comparison group to measure treatment effects due to the selection process that occurred in the treatment communities, but not in the control communities.   

Results suggest that the cash transfer program makes people feel more secure, less desperate, and affects their discount rate and willingness to save.  We find a strong impact on beneficiaries’ expectations about their future quality of life, with recipients being up to nine percentage points more likely to believe the future will be better than non-beneficiaries. Similarly, the beneficiaries of the cash transfer program consistently reported a willingness to delay gratification at a higher rate than the comparison group.  We find that on average treatment households are as much as 10 percentage points more likely to wait for future money than households not receiving the cash transfers.