Micro Economics January – May 2019 Timothy Rudd (Mr. Rudd)

Overview 1-22-2018 About the course (5 min) Intro to Micro Economics Video (12 min) Discuss MDRC example – Conditional Cash Transfers (20 min) Stretch/Break (2 min) Intro to Charts and Elasticity (10 min)

About the Class - Grading Plan Per Quarter 40% Quizzes (4-5) 30% Projects (1-2) 10% Homework (daily) 20% Participation

Rationale of Conditional Cash Transfers Problem: for a variety of reasons families may underinvest in their own development, even though such investments can have long-term benefits Solution: financial incentives were designed to encourage families to make extra investments of time and energy in three domains: education, health care, and work-related activities In the short term, the monetary rewards provide an immediate increase in income reducing poverty In the long run, additional time and energy devoted to education, health care, and work will increase earnings and quality of life reducing poverty

Conditional Cash Transfers Basics Common in lower- and middle-income countries to reduce poverty (Mexico $1 billion from World Bank) Offer cash assistance to poor families for meeting certain criteria Reduce immediate hardship (value of cash transfer) Reduce long term poverty (value of impacts on human capital outcomes) First version of Family Rewards was evaluated in New York City in 2007 Family Rewards was an innovative approach to poverty reduction in the United States that was modelled on the conditional cash transfer (CCT) programs common in lower- and middle-income countries. The program offered cash assistance to poor families to reduce immediate hardship, provided they met certain criteria related to family health care, children’s education, and parents’ work, in the hope of reducing poverty over the long term. The first version of Family Rewards was evaluated in New York City in 2007. The lessons learned from that evaluation led to the next iteration of the model (“Family Rewards 2.0”). MDRC evaluated Family Rewards 2.0 through a randomized controlled trial involving about 1,200 families in each city, half of whom could receive the cash rewards and half of whom could not. This report presents the program’s costs and the economic value of the estimated effects over four years.

Evaluation Basics Where? Who? For what? Memphis, Tennessee and Bronx, New York Who? 1,200 families randomly assigned in each city, half offered rewards For what? Education (high school students): 1) high attendance, 2) good grades, 3) performance on state core exams, and 4) taking college entrance exams Health (each family member): 5) medical check-ups and 6) dental check-ups for each family member Work and training (parents): 7) full-time work and 8) earning a high school equivalency credential Family Rewards was an innovative approach to poverty reduction in the United States that was modelled on the conditional cash transfer (CCT) programs common in lower- and middle-income countries. The program offered cash assistance to poor families to reduce immediate hardship, provided they met certain criteria related to family health care, children’s education, and parents’ work, in the hope of reducing poverty over the long term. The first version of Family Rewards was evaluated in New York City in 2007. The lessons learned from that evaluation led to the next iteration of the model (“Family Rewards 2.0”). MDRC evaluated Family Rewards 2.0 through a randomized controlled trial involving about 1,200 families in each city, half of whom could receive the cash rewards and half of whom could not. This report presents the program’s costs and the economic value of the estimated effects over four years.

Evaluation Key Findings Increased income and reduced poverty in short-term for all families Increased dental visits and adults’ self-reported health status, particularly for those in poorer health at study entry Reduced work and earnings for some participants No affect on students’ progress in school Family Rewards was an innovative approach to poverty reduction in the United States that was modelled on the conditional cash transfer (CCT) programs common in lower- and middle-income countries. The program offered cash assistance to poor families to reduce immediate hardship, provided they met certain criteria related to family health care, children’s education, and parents’ work, in the hope of reducing poverty over the long term. The first version of Family Rewards was evaluated in New York City in 2007. The lessons learned from that evaluation led to the next iteration of the model (“Family Rewards 2.0”). MDRC evaluated Family Rewards 2.0 through a randomized controlled trial involving about 1,200 families in each city, half of whom could receive the cash rewards and half of whom could not. This report presents the program’s costs and the economic value of the estimated effects over four years.

Benefit-Cost Analysis: Main Questions How much did it cost to operate the program? Which components of the program were most and least expensive? What is the economic value of impacts on primary outcomes? Does the program produce a positive net present value? What is the benefit-cost ratio for the program? How do various types of uncertainty affect the benefit- cost conclusions?

Benefit-Cost Analysis: Key Findings Cost - over three years, the program spent $13,459 on the typical participating family. Nearly half of this amount (48.3 percent) was in the form of rewards paid to participating families. The remainder was paid to program staff to process rewards and actively advise families on how to earn rewards. Benefits - produces positive benefits for participating families, taxpayers, and society as a whole Results were driven primarily by the value of the cash reward payments and a positive impact on adults’ average self-rated health status. Net Present Value Positive for participating families (the present value of benefits was greater than the present value of program costs) Negative for taxpayers and society (the present value of benefits was less than the present value of program costs)

Costs

Outcomes

Present Value of Benefits per Family by Domain

Net Present Value per Family

Break-even Points As operated, Family Rewards 2.0 did not produce positive net present value for taxpayers. In order for it to produce a positive net present value for taxpayers, key impacts would need to change dramatically. the impact on graduation for each ninth- and tenth-grader would need to increase from 0.0 percentage points to roughly 16.3 percentage points. Or, the impact on self-rated health per family member would need to increase from a 0.1 point impact to an impact of approximately 1.7 points (on a five-point scale) Alternatively, the impact on earnings per head of household would need to increase from roughly -$2,000 to approximately $33,000.

Other Ways to Improve Program Reduce the level of effort required to support participants and process rewards Increase the value of potential impacts on targeted outcomes Conditional payments are more likely to produce benefits in excess of program costs for taxpayers and society when the level of effort required to administer reward payments is low and the potential value of impacts on targeted outcomes is high

Read Modules 46 and 47 (pages 457-474) Homework Read Modules 46 and 47 (pages 457-474)