Aid Thoughts

Alex Tabarrok discusses an unconditional cash transfer charity operating in Kenya (presumably through MPESA) called GiveDirectly. He praises the program for meeting Tyler Cowen's three principles of charitable giving (cash, no incentive problems, no costly restrictions for recipient).

Tabarrock takes some issue with GiveDirectly's claim that making their transfer unconditional allows people to spend cash on what they really need:

The second point is a bit disengenous, yes it lets recipients purchase they things they need but it also lets recipients purchase alcohol, cigarettes and prostitutes. Even in poor countries, a substantial amount of poverty is caused by poor choices. Still, there is no special reason to think that cash grants will increase the proportion of money spent on “bad goods.” Cash grants could even reduce bad-goods spending. Some people drink to escape depressing circumstances, for example, so if you make things less depressing, drinking can fall. Moreover, even if you give people housing, health care, or food (stamps!) it’s not so easy to get around bad-goods spending because money is fungible.  Thus, I have no problem with donating cash.

As you can see, Tabarrock eventually works his way out of this problem, although without drawing on any evidence from the cash-transfer literature. Even more strange - in his assertion that poverty is caused by poor choices, rather than linking to research into decision-making in developing countries (hyperbolic discounting anyone?), he instead just links to Nick Kristof's mostly-anecdotal article arguing that too many men in poor countries are drinking themselves into poverty. Really? Is that the best we can do?

Update: Alex responded to my nit-picking, pointing out that Kristof's assertions are based on a paper by Banerjee & Duflo. I noted that Kristof did some cherry-picking with the results he cited.