Household responses to cash transfers

This paper exploits the experimental set-up of the cash transfer program PROGRESA in rural Mexico to estimate a collective model of the household in order to investigate how parents allocate household resources. We show that household decisions are compatible with the testable implications of the collective model, based on so-called distribution factors, at the beginning of the program, but reject them later on. We discuss a number of possible explanations for these findings and provide several arguments, consistent with our model, suggesting that this rejection may indicate that the treatment is not only empowering women, but possibly also changes the individual preferences. This demonstrates once more the difficulty of finding exogenous distribution factors. It also shows that second order effects of cash transfer programs are important and suggests we need richer structural models (including endogenous distribution factors) to thoroughly analyze these policy interventions.