Can Cash Do Better Than In-Kind Aid? Let’s Find Out

This month Foreign Affairs featured an article in which Chris Blattman and Paul Niehaus argue that donors funding poverty reduction should benchmark the costs and benefits of their in-kind assistance against just transferring cash. They write:

Does the benefit of an in-kind donation to one family really outweigh the value of helping twice or even ten times as many households? For a growing number of antipoverty programs, the answer to that question appears to be no. New research suggests that cash grants to the poor are as good as or better than many traditional forms of aid when it comes to reducing poverty. The process of transferring cash, moreover, is only getting cheaper, thanks to the spread of technologies such as cell phones and satellite signals. And simply asking whether a given program is doing more good than it costs puts pressure on the aid sector to be more transparent and accountable. It’s well past time, then, for donors to stop thinking of unconditional cash payments as an oddball policy and start seeing them for what they are: one of the most sensible tools of poverty alleviation.

We recently hosted Niehaus to keynote a debate on this question (described well by Jenny Aker here). And after hearing both sides of the argument, I would go farther and argue that we could (and should) benchmark most in-kind aid against cash.

While 52 countries already have cash transfer programs – some operating even in very low-income settings – cash transfers make up a microscopically small share of total aid. And since some big ticket aid has produced little in the way of concrete results, like post-earthquake aid to Haiti and post-conflict aid to Afghanistan, the minimum we should ask is whether all this activity can do better than just wiring money to people in need.

Benchmarking in-kind aid against cash transfers would help us address any number of empirical questions: How do we reduce stunting most quickly and cheaply – “nutrition-sensitive” agricultural productivity investments or cash to most impoverished households? What reduces HIV infection rates fastest – subsidizing drugs or just transferring cash to commercial sex workers so that they do not engage in high-risk behaviors? What increases access to clean water most quickly and cheaply – solar water disinfection or cash? Our debate even posited that cash transfers might help to improve governance; Todd Moss has already argued that cash transfers could be taxed and citizens would have a greater stake in holding government accountable for providing goods and services.

There are already good examples of this kind of comparative cost-effectiveness analysis. IFPRI reported last year on an experimental study in four countries assessing the comparative cost-effectiveness of food, vouchers and cash transfers in improving food security, finding that cash transfers generally but not always proved to be more effective at significantly less cost (HT Willa Friedman).   Ex-ante modeling is also possible; given a goal of increasing primary school enrollment in Mozambique in 2002, a study by Ashu Handa contrasts the cost-effectiveness of supply side interventions like adult literacy campaigns and building schools with cash transfers to raise incomes, finding that –at least ex ante- supply-side investments were more cost-effective.

This is the kind of economic evaluation that one hopes to see as part of Project Appraisal Documents at the World Bank, and its own norms already specify that “consideration of alternatives is one of the most important features of proper project analysis.” While many NGOs are already investing in cash transfers, some big NGOs –particularly those that favor transferring credit, skills or animals to reduce poverty like Kiva and Heifer International- could usefully evaluate their work this way (though there is always the argument that Heifer raises more money because of the people-animal connection).  USAID in particular –with its stated goal of “ending extreme poverty in the next generation”- is another candidate for more attention in this area.

Funders should find out if their in-kind assistance does more good than cash. Should we at CGD do more to track the use of cash benchmarking by aid agencies and NGO? Can we answer the question: what share of spending goes to cash transfers, and what is the evidence that the in-kind support provided generates more benefits? And if we did, would that change anything? Or is the Give Directly impact incentive enough?