Using Incentives to Improve Outcomes: North-South Knowledge Sharing on Conditional Cash Transfer Programs Lawrence Aber New York University Laura Rawlings World Bank

Outline I. The Context: First generation CCTs in the Global South/Latin America New thinking on the role of welfare reform. New thinking on the role of welfare reform. The place of CCTs in welfare reform The place of CCTs in welfare reform II. The focus: Second generation CCTs globally Lessons and questions Lessons and questions Re-examining incentives Re-examining incentives

Outline (continued) III. The Social and Behavioral Science of Incentives: A. Empirical studies of financial incentives (not holistic CCTs). A. Empirical studies of financial incentives (not holistic CCTs). Variations in Key Dimensions. Variations in Key Dimensions. B. Theoretical perspectives on the design and influence of financial incentives. B. Theoretical perspectives on the design and influence of financial incentives. Three Illustrations: Three Illustrations: (a) Psychology: Self-Determination Theory (b) Sociology: Social Capital, Social Control and Human Ecology Theories Human Ecology Theories (c) Behavioral Economics.

Outline (continued) IV. Building tests of theory into evaluations of CCTs: The Opportunity NYC/Family Rewards “Embedded” Study.

I. Context: First generation CCTs CCTs part of broader welfare reform movement CCTs part of broader welfare reform movement Focus on households/demand side Focus on households/demand side Use of incentives Use of incentives Use of evaluation Use of evaluation Focus on building human capital Focus on building human capital Promising evaluation results on use of social services, poverty reduction Promising evaluation results on use of social services, poverty reduction

II. The Focus: Second Generation CCTs Questions left from first generation Questions left from first generation Are results replicable? Are results replicable? Graduation, labor market participation? Graduation, labor market participation? How to improve long-term outcomes? How to improve long-term outcomes?  Leads back to focus on incentives and how they are used Incentivize final outcomes? Incentivize final outcomes? Tailor incentives to populations/households Tailor incentives to populations/households Menu of incentives? Menu of incentives?  Calls for a better understanding and testing/evaluation of how incentives work

III.A - Empirical Studies of Financial Incentives Domains Health (11 studies and 2 meta-analyses) Health (11 studies and 2 meta-analyses) Education (18 studies; 10 U.S. and 8 International) Education (18 studies; 10 U.S. and 8 International) Work (12 studies) Work (12 studies) Selection Criteria Conditional financial incentive (NOT CCTs) Conditional financial incentive (NOT CCTs) Primary focus on low-income population Primary focus on low-income population Methodologically sound Methodologically sound Published since Published since 1991.

Findings Health- incentives often effective in promoting simple, short-term change - incentives sometimes effective in promoting complex, long term change. Education- majority of U.S. and international studies showed positive effects on school enrollment, attendance and academic progress (grades, grades completed, graduation). - virtually no evidence of effects on other outcomes.

Findings (continued) Work- Work incentives speed up employment but the boost is temporary… controls catch up. - Work incentives increase earnings and sometimes total household income. - Indirect effects on children? Positive for elementary-aged children! Positive for elementary-aged children! Unclear for adolescents? Unclear for adolescents?

Variations in Key Dimensions Nature of Behavior Nature of Nature of Behavior Nature of Incentivized Conditionality Incentivized Conditionality Nature of Incentive Additional Supports/ Nature of Incentive Additional Supports/ Services Services Target Population Nature of the “Context” Target Population Nature of the “Context”

III-B. Theoretical Perspectives on the Design and Influence of Financial Incentives 1. Psychological Theories  Self-Determinational Theory (Deci)  Dynamic Skill Theory (Fischer)  Bio-Ecological Theory (Bronfenbrenner)  “Stages of Change” Theory

Theoretical Perspectives (continued) 2. Sociological Theories  Social Control Theory/Norms and Behavioral Control  Social Capital Theory/Relationships and Networks  Social Disorganization Theory/Concentration and other effects.

Theoretical Perspectives (continued) 3. Economic Theories Neo-Classical Economic Concepts: Incentives…  Reduce opportunity costs.  Improve clarity of systems messages about what is valuable.  Promote investments in human capital Behavioral Economic Concepts: “The Choice Architecture”

Illustrations of Theory-based Hypotheses and Explanations Example #1:Paying children for taking and passing tests. Self-Determination Theory: Reliance on extrinsic rewards (like financial incentives) will reduce intrinsic motivation (in short run) and academic achievement (in long run).

Early studies focused on Intrinsic Motivation. 1. Intrinsic motivation is associated with better learning, performance and well- being. 2. Extrinsic rewards (as well as threats, surveillance, evaluation and deadlines) undermine intrinsic motivation. 3. Providing choice, acknowledging people’s inner experiences, positive feedback enhance intrinsic motivation.

The Mediating Role of Basic Psychological Needs: Competence, Autonomy, Relatedness

More recent studies focus on fuller consideration of extrinsic motivation: A continuum of types of regulation. 0. Non-regulation3. Identified Regulation 1. External 4. Integrated Regulation Regulation Regulation Regulation 2. Introjected 5. Intrinsic Regulation Motivation Regulation Motivation

The Process of Internalization and Integration of Extrinsic Motives is: a natural developmental process, a natural developmental process, but is strongly affected by the degree to which fulfillment of basic psychological needs is supported as they engage in the relevant behavior. but is strongly affected by the degree to which fulfillment of basic psychological needs is supported as they engage in the relevant behavior.

Factors that facilitate internalization and integration of extrinsic motives: Feelings of relatedness to socializing others. Feelings of relatedness to socializing others. Feelings of competence with respect to the regulation being internalized (e.g. ability to grasp or understand the meaning or rationale behind the regulation; ability to enact it). Feelings of competence with respect to the regulation being internalized (e.g. ability to grasp or understand the meaning or rationale behind the regulation; ability to enact it). An opportunity for the individual to freely process and endorse the transmitted value/regulation. An opportunity for the individual to freely process and endorse the transmitted value/regulation.

Factors affecting regulation of UNINTERESTING ACTIVITIES: A meaningful rationale for why the target behavior is important. A meaningful rationale for why the target behavior is important. Acknowledgement that activities may not be intrinsically interesting. Acknowledgement that activities may not be intrinsically interesting. An emphasis on choice (feeling free to accept responsibility for the behavior). An emphasis on choice (feeling free to accept responsibility for the behavior).

Illustrations (continued) Example #2: Implementing a Financial Incentive Experiment for all eligible (via a place- randomized trial). for all eligible (via a place- randomized trial). for selected individuals (via individual-randomized trial). for selected individuals (via individual-randomized trial). Bio-ecological, Social Capital and Social Control Theories re: concentration and peer effects.

Illustrations (continued) Example #3: Building on insights from behavioral economics in designing next generation CCTs (e.g. Amir et al., 2005; Bertrand et al., et al., Introduce CCTs via small discussion groups (vs. individual interviews). 2. Reduce cognitive load and improve information processing regarding incentives.

Illustrations (continued) 3. “Prime the right identities” in introducing CCTs to poor individuals and sub- communities. 4. Reduce the danger of killing intrinsic motivation by framing CCTs in an autonomy promoting manner. 5. Communicate about CCTs in a manner that conforms to people’s “mental accounting schemes”.

Building tests of theory into evaluations of CCTs: The ONYC/FR “Embedded Study”. Sub-study of Core Study. Sub-study of Core Study. Focus on only 1 of 3 age cohorts (due to funding constraints) at 24 months. Focus on only 1 of 3 age cohorts (due to funding constraints) at 24 months. Proposals submitted to study all 3 age cohorts at 48 months. Proposals submitted to study all 3 age cohorts at 48 months. Theory of Change and Measurement Strategy. Theory of Change and Measurement Strategy. Current status; next steps. Current status; next steps.

Testing “competing” hypotheses about “mechanisms of effect” Incentives behavioral engagement academic performance self- efficacy behavioral compliance extrinsic motivation intrinsic motivation academic performance Incentives intrahousehold resource allocation child (& parent) time use Mediating Processes Targeted & Non- targeted Outcomes

IV. Implications of Prior Studies and lack of Theory for Opportunity NYC (and other CCTs). 1. Where does ONYC fall among the variations in fiscal incentive initiatives? 2. What theories could be used to continue to inform: the evaluation of ONYC; the interpretation of findings; the redesign of future CCT initiatives in NYC?

Implications (continued) 3. What do politicians and program executives need to know in designing incentive strategies? 4. What do evaluators and researchers need to know in designing studies of incentive strategies? 5. How can funders promote implementation and cost-effective studies to complement impact studies?

The Advantages of Greater Attention to Social and Behavioral Science Theory in Studies of Financial Incentives. 1. Easier to integrate and synthesize findings across studies. 2. Able to design tests of rival explanations for results. 3. Knowledge from prior studies will correlate more efficiently and therefore inform future policy incentives more powerfully.