Cash transfers are not necessarily wealth transfers

Here’s a common argument:

The problem with the poor is that they haven’t got enough money. There’s ample empirical evidence backing this up. Therefore, the obviously-correct poverty intervention is to simply give the poor cash. You might be able to do better than this, but it’s a solid baseline and you should often expect to find that interventions are worse than cash.

There are technical reasons to be skeptical of cash transfers - which is why it is so important that the cash transfer charity GiveDirectly is carefully researching what actually happens when they give people cash - but until fairly recently, these objections seemed to me like abstruse nitpicks about an intervention that was almost analytically certain to be strongly beneficial.

But they’re not just nitpicks. Cash isn’t actually the same thing as human well-being, and the assumption that it can be simply exchanged into pretty much anything else is not obviously true.

Of course, saying “X is possibly wrong” isn’t very helpful unless we have a sense of how it’s likely to be wrong, under what circumstances. It’s no good to treat cash transfers just the same as before, but be more gloomy about it.

I’m going to try to communicate an underlying model that generates the appropriate kind of skepticism about interventions like cash transfers, in a way that’s intuitive and not narrowly technical. I’ll begin with a parable, and then talk about how it relates to real-world cases.

Two cities, two stadiums

In a world where the only thing people enjoy is baseball, there is a wealthy city. In this city, there is an excellently designed baseball stadium. The seats are amply sized and comfortable. Even the worst seats have a good view of the field. There are plentiful amenities, though the price of food and drink is high. There are awnings to block the rain. There are lights in case the game goes late.

Elsewhere, in a poor city, there is another baseball stadium. This one is shoddily built. The upper seats are tiny to cram in as many people as possible. The worst seats can hardly see the field, or are exposed to inclement weather. The aisles are too narrow. The mood is chaotic, and in the poorer areas of the stadium – but not in the expensive areas with the best views – people often get into fights. A smaller variety of cheaper, lower-quality food and drink is available. There is always a line for the bathroom, unless you paid for a box with a private one.

You happen to live in the rich city, and attend the rich stadium. You know two more things, from studying data within and between many cities in this world:

  1. Within a city, the self-reported enjoyment of baseball scales logarithmically with individual wealth. In other words, if you ask people to rate their happiness on a scale from 1 to 10, then no matter how rich or poor someone is, they’ll be the same distance on the scale from someone with twice their wealth. (For instance, if people with an annual income of $10,000 report an enjoyment level of 5.2 out of 10 on average, and people with an annual income of $20,000 report 5.5 out of 10, then people with an annual income of $40,000 report 5.8 out of 10.)
  2. Between cities, self-reported enjoyment of baseball also scales logarithmically with (average) wealth.

Clearly, enjoyment is a simple positive function of money; the problem with the people in the poor stadium is that they haven't got enough of it. What's more, since the function is logarithmic, a dollar goes much farther for the poor than for the rich. So you send some to the poorest people in the poor stadium, hoping that it will do then some large multiple of the good it can do you.

Because you know that good-sounding charitable interventions often fail for surprising reasons, you decide to test your assumptions, by following up with the recipients of the cash transfers. What do you find?

It turns out people care about two things: the quality of their seat, and food.

Some recipients buy more, or better food. Because the prices are lower over there, the difference in quality is large for them, even though the money would only make a small difference to them. Other recipients buy their way into better seats. Again, since the seats in the poor stadium cost less than the seats in the rich stadium, they gain a lot more than you lose. Overall, it looks like everyone who receives money enjoys the game a lot more, so your belief in the merits of cash transfers has been confirmed.

Then you learn about a third statistical regularity that flies in the face of everything you've learned so far:

  1. As individual cities get richer, average enjoyment of baseball games does not increase.

What's going on?

When someone pays for on a nicer seat, their experience of the game is improved. But if they've outbid someone else for that seat, that other person is now stuck in a worse seat. Buying someone a nicer seat in the same stadium does not improve the average game enjoyment, because – assuming fully booked stadiums – it makes someone else's experience worse, because they're now stuck in the bad seat. So it matters quite a lot how much of the variation in people's well-being comes from things that can easily be got more of, like food, and how much comes from locally scarce goods, like choice seats.

But richer cities have nicer stadiums! Doesn't that mean that if you transfer enough money to people in poor cities, the poor city stadiums will get better? Maybe not! Stadiums are pretty hard to change substantially once built. And maybe it was never the money that made the stadiums better; maybe cities that have their act together tend to be better both at making money, and at stadium-building. You don't have empirical reason to doubt this.

How should your strategy to improve people's baseball experiences take this into account?

First, cash transfers can still be of some value. For instance, the very poorest spectators may go hungry. If you send them money, and they use the money to buy food, they might enjoy the game a lot more without harming anyone else. But if you keep giving them money, eventually they'll have enough food. The only thing left to buy is a positional good: better seats.

Second, if there are high-wage cities with spare stadium seating, you might want to help people move there. They'll enjoy baseball games more, since even the comparatively bad seats will be better, without harming anyone else. Some might turn down the opportunity out of loyalty to their hometown team, but others might take you up on it.

Third, if there is a way you can improve your home stadium, this is an important good. If you're willing to learn foreign cultural norms and be genuinely curious about why poor people have worse stadiums, you might even be able to help them reform their institutions to get better stadiums built, which could make a big difference in the quality of their lives.

The second and third points go together well. If your town's stadium is at capacity, immigration doesn't help anyone enjoy a nicer game – but persuading the owner to add more seats can change that.

How this applies to the real world

In The Price of Glee in China, Scott Alexander points out a few key facts about the happiness literature:

  1. Within countries, self-reported well-being seems to scale logarithmically of average income. (Again, that means that each doubling of income corresponds to the same, constant increase in reported happiness points.)
  2. Between countries, a similar relationship seems to hold.
  3. Within countries, per capita GDP growth does not appear to lead to corresponding increases in well-being.

These are the same three statistical regularities I gave in the baseball hypothetical, and we should draw similar conclusions. GiveDirectly is an excellent cash-transfer charity. It's on the GiveWell top charities list in large part because it is taking such care to collect evidence about what actually happens when the global poor are simply given money.

To that end, I found this Vox article about GiveDirectly's basic income experiment interesting. In particular, it's interesting that the headline case is someone who sometimes went hungry, but is not going to spend the money on food. Instead, she's going to spend it on what's plausibly a positional good instead:

She is expecting her third child very soon. […] I asked Jacklin if she’s ever gone the whole day without eating; she has. I asked when the last time this happened was. She told me, “Last week.”

But when the nonprofit GiveDirectly told her that it would give her, and every other adult in her village, a basic income payment of 2,280 Kenyan shillings (about $22) a month for the next 12 years, she knew immediately that she would not spend the money on food.

Her plan is to save the money and then use it to pay her children’s school fees.

She is starving herself, while pregnant, in order to save for her kids' formal schooling. This looks like a really bad outcome.

A brief digression on education

But education! She’s investing in her kids! Isn’t that good?

The education industry is already eating the developed world alive, with little apparent benefit. You might argue that there are diminishing returns – intuitively, education seems important. But, there's ample evidence that developing-world education often doesn’t really improve people's productive capacity; it often seems no better than obedience school, when it’s not being used purely as a certification of the ability to obtain a degree (and thus that you’re in the right social class for certain positions).

For a particularly dramatic example, consider Scott's report on his experience in Haiti:

Even if you're one of the lucky ones who can afford to go to school, your first problem is that the schools can't afford paper: one of our hosts told stories of Haitian high schoolers who were at the level of Western 5th graders because they kept forgetting everything: they couldn't afford the paper to take notes on!

The other problem is more systemic: schools teach everything by uninspired lecture even when it's completely inappropriate: a worker at our camp took a "computer skills" course where no one ever touched a computer: it was just a teacher standing in front of the class saying "And then you would click the word FILE on top of the screen, and then you'd scroll down to where it said SAVE, and then you'd type in a name for the file..." and so obviously people come out of the class with no clue how to use an actual computer. There's the money issue - they couldn't afford a computer for every student - and a cultural issue where actually going to school is considered nothing more than an annoying and ritualistic intermediate step between having enough money to go to school and getting a cushy job that requires education.

These are both entirely consistent with a story where education improves individual outcomes by inducting people into the "educated class". And Scott continues:

We heard horror stories of people graduating from nursing school without even knowing how to take a blood pressure - a nurse who used to work at the clinic would just make her blood pressure readings up, and give completely nonsensical numbers like "2/19". [W]hen cornered this nurse absolutely insisted that the blood pressure had been 2/19 and made a big fuss out of it.

Likewise, bureaucrats also do not seem to be able to do the sorts of tasks we would expect formal schooling to qualify you for. One such task is alphabetization:

Gail, our program director, explained that she has a lot of trouble with her Haitian office staff because they don't understand the concept of sorting numerically. Not just "they don't want to do it" or "it never occurred to them", but after months and months of attempted explanation they don't understand that sorting alphabetically or numerically is even a thing. Not only has this messed up her office work, but it makes dealing with the Haitian bureaucracy - harrowing at the best of times - positively unbearable. 

Gail told the story of the time she asked a city office for some paperwork regarding Doctors Without Borders. The local official took out a drawer full of paperwork and looked through every single paper individually to see if it was the one she wanted. Then he started looking for the next drawer. After five hours, the official finally said that the paper wasn't in his office.

While investing in education to get a higher future salary is a net good in a simplified economic model, in practice it's often just buying what economists call rents. Even if those rents sometimes take the form of a job, it's clear from Scott's example that schooling is not enabling government bureaucrats to create more value for taxpayers than less-schooled people would be able to do – they're just outcompeting the unschooled for a fixed pool of jobs where they don't do much.

I suspect Haiti is especially bad for a bunch of reasons, but I don't know how exceptional it is. And it would be weird for marginal education to be bad in exceptional basket cases like Haiti, bad in well-to-do countries like the US, but good in the middle.

Here's another anecdote from a friend:

I had the opportunity to observe one poor school in India and indeed, school literally didn't happen most days of the year for one reason or another. (Waiting for textbooks was one reason I remember them giving.) Also, the teachers were stealing the food the rotary club provided for free lunch. (Someone noticed and then they stopped, which I suppose is nice.)

And often when they showed up to school they were often grading papers from other schools for separate pay instead of teaching the kids.

At least they could get the teachers to show up to steal the lunches sometimes.

Banerjee and Duflo's Poor Economics is consistent with the view that this is a common problem in developing countries. In Chapter 4, they write:

In 2002 and 2003, the World Absenteeism Survey, led by the World Bank, sent unannounced surveyors to a nationally representative sample of schools in six countries. Their basic conclusion was that teachers in Bangladesh, Ecuador, India, Indonesia, Peru, and Uganda miss one day of work out of five on average, and the ratio is even higher in India and Uganda. Moreover, the evidence from India suggests that even when teachers are in school and are supposed to be in class, they are often found drinking tea, reading the newspaper, or talking to a colleague. Overall, 50 percent of teachers in Indian public schools are not in front of a class at a time they should be. How are the children supposed to learn?
In 2005, Pratham, an Indian NGO focused on education, decided to go one step further and find out what children were really learning. […] Close to 35 percent of children in the seven-to-fourteen age group could not read a simple paragraph (first-grade level) and almost 60 per-cent of children could not read a simple story (second-grade level). Only 30 percent could do second-grade mathematics (basic division). […]
Unfortunately, India is not unique: Very similar results have been found in neighboring Pakistan, in distantKenya, and in several other countries. In Kenya, the Uwezo Survey, modeled on ASER, found that 27 percent of children in fifth grade could not read a simple paragraph in English, and 23 percent could not read in Kiswahili (the two languages of instruction in primary school). Thirty percent could not do basic division. In Pakistan, 80 percent of children in third grade could no tread a first-grade-level paragraph.

In addition, parents seem to view education as a way to buy a credential, as a ticket into an "educated class" job, not a way for their children to pick up valuable skills continuously:

Parents seem to see education primarily as away for their children to acquire (considerable) wealth. The anticipated route to those riches is, for most parents, a government job (as a teacher, for example), or failing that, some kind of office job.

Parents thus would rather pay for the complete education of their highest-potential children, then pay for a mostly-complete education for all their children. (Poor Economics does claim that the all-or-nothing credentialist view is unrealistic and there are substantial gains for each year of education.)

I believe very strongly that learning is an important form of real capital, and it's entirely possible that formal schooling is more like this in the developing than in the developed world, but I haven't see the evidence, and at this point I think that if you try to justify the benefits of a social program by pointing to the bare fact that people are using it to buy more formal schooling, I think this is mostly adverse rather than positive evidence. (I'm more optimistic about educational programs like SOLE that try to route around the hierarchy, and focus exclusively on learning rather than credentials.)

Some investment is real

While some investments people make to better their or their children’s circumstances are positional, others seem much more like the sort of real investment we might hope for, under the usual economic framework. For instance, one common use of GiveDirectly’s cash transfers is to buy a metal roof, which lasts much longer than the more commonly used and cheaper thatch roofs. The most conservative estimates GiveWell cites suggest that the annual return on investment for metal roofs is 7-14%, though the other estimates they report are substantially higher.

Importantly, the return on investment for a tin roof is not plausibly extractive. Even though purchasing the roof imposes a cost on the world (by increasing demand for the relevant inputs), it also reduces a cost (by reducing demand for thatch roof inputs), and the reduction seems to be substantially greater than the increase.

At least some recipients of cash transfers try to start businesses, which is maybe the paradigmatic case of an investment for which we should expect a return. But while locals know their local economy much better than I do, I am skeptical of a business plan where the basic income is being used to subsidize variable rather than fixed costs. As Vox reports:

Samson [...] explained his plan to go into cage fishing at the lake. He’d already bought the fish and just needed to buy feed, and the feed — per a catalog he showed us — is expensive. So he’s going to use the GiveDirectly money for that part of the operation.

Business acumen, like anything else, is a skill that can take time to develop - while there are serious disadvantages to making decisions for people from afar, we should at least not expect that cash transfer recipients will immediately make reasonable business decisions.

How should we think about cash transfers now?

I hope that most readers will be see that the point here is not that cash transfers are bad. The point is that when you look at the evidence about what happens when rich people send poor people money, good news won’t look like a tedious confirmation of an obvious truth, but rather like an encouraging outcome where one should have been actually uncertain beforehand. And you should be able to recognize ambiguous or bad news as such, and not assume that it's good by definition.

I hope that it will also motivate some amount of additional justified skepticism of nominal rates of return, as estimates of the social value of an investment. You, as someone living in a rich country, might not think that your access to higher-wage jobs is a reliable measure of how much value you’re able to provide to the world. (If you did think this, the most benevolent thing you could do would be to maximize your nominal wealth.) If you are in fact skeptical of the meaningfulness of your income as a metric, you should be similarly skeptical of the meaningfulness of variations in income of people in poor countries.

Finally, while abstractions like income levels and average self-reported happiness can be good starting points for generating hypotheses, I hope I’ve been somewhat persuasive that they are not adequate metrics for making philanthropic decisions - one has to engage with what’s concretely happening in the world.

(Cross-posted on my personal blog and the Effective Altruism forum.)


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As I read the section Two Cities, Two Stadiums I thought to myself that this was a rather long-winded explanation of positional goods. Then I hit the gold of finding out the log distributions matched reality, and I was surprised! That was the first super helpful part of this post.

The second was this paragraph alone:

The education industry is already eating the developed world alive, with little apparent benefit. You might argue that there are diminishing returns – intuitively, education seems important. But, there's ample evidence that developing-world education often doesn’t really improve people's productive capacity; it often seems no better than obedience school, when it’s not being used purely as a certification of the ability to obtain a degree (and thus that you’re in the right social class for certain positions).

One of the top three most valuable things I get from reading your posts Ben, is seeing the straightforward implications of my beliefs stated as the norm, followed by internally feeling Pat Modesto tell me that it's not proper behaviour to take that view publicly even if it is possibly true, followed by me noticing that PAT MODESTO IS IN MY HEAD AND GUIDING THE THOUGHTS I LET MYSELF THINK. (And each time, I get better at kicking him out.) This has generally helped me a great deal in building my own models of the world, and I wanted to thank you for that. The subsequent paragraphs of evidence regarding marginal education being bad and its main function largely failing, were great, but I want to highlight that the quoted paragraph was all it took me to realise this is my actual belief.

The same is true for GiveDirectly, which in all of my conversations is implicitly thought of as a fine and good thing, and not something that has a perfectly good chance of being of minimal/no value due to most money being spent on positional goods, which is something you could've pointed out to me by just saying that sentence (I already had the concept of positional goods). Yet I hadn't noticed this.

For these reasons, I've both moved it to the frontpage and promoted it.

Thanks! This kind of feedback is extremely helpful (and a crucial complement to people who helpfully show exactly where and how they've missed the point).

I feel like I should point out that the other implication of my argument (for past-me, who's the intended audience, after all) is that GiveDirectly isn't wasting its time when it does so much empirical follow-up - that work is really important. And for a bit of balance, see Kelsey Piper's comments here, which suggest that the empirical picture is actually fairly encouraging.

You're welcome :-)

I didn't understand the parenthetical about it being a 'crucial complement' - what did you mean?

Two of the dimensions along which I can get feedback are:

  • Content
  • Efficacy

Content feedback is stuff like pointing out facts I got wrong, or missed, or extending an argument in a surprising direction, or pointing out supporting facts, etc.

Efficacy feedback is when a comment shows that part of my post was effective or ineffective at communicating. Often when people misunderstand my post, it's pretty clear to me what part they misunderstood. Learning that something was misunderstood helps me see which sorts of things might need to be better explained. Sometimes people are also kind enough to simply tell me that a part was unclear or seemed unsupported.

But when the efficacy feedback I get is mainly critical, it nudges me towards some combination of general long-windedness (since I lower my estimate of how clear all the parts are), and writing less often (since the EV of writing is lower). Getting praise for the parts that were effective is extremely helpful in counteracting this bias, and is just as good at causing me to reallocate my efforts from less to more effective types of writing.

This particular item of praise was especially helpful because part of what you're praising - part of what made this piece effective for you - was that I didn't feel the need to tediously defend something that I thought was clearly true.

Huh! I hadn't noticed that before. I will try to give people more feedback on the very particular parts of their writing that were useful to me.

Maybe at some point I should put this in a semi-prominent post somewhere on the site called "some types of feedback that are helpful for writers". My guess is that many folks aren't aware of this, and that there's a bunch of things opaque to the majority of folks who aren't writers that could be put into such a post.

I just want to point out that it's not that weird to have irregular eating habits while pregnant. Being pregnant is a lot like being sick; it's unpleasant, it fucks with appetite, and it is not at all unsurprising to me that someone who is in any way not rigidly accustomed to eating every single day would skip it voluntarily, let alone while under any relevant monetary constraint. I don't think you can conclude that Jacklin is expressly foregoing prenatal nutrition to pay for school.

1. Within countries, self-reported well-being seems to scale logarithmically of average income. (Again, that means that each doubling of income corresponds to the same, constant increase in reported happiness points.)
2. Between countries, a similar relationship seems to hold.
3. Within countries, per capita GDP growth does not appear to lead to corresponding increases in well-being.

The 3rd claim is controversial. Some researchers (such as Justin Wolfers) have data which suggest that GDP growth does translate into increased well-being, on average. Others like Easterlin have data that seem consistent with the 3rd claim. It's harder to get a clear empirical answer to it than to the first 2, because it involves a much smaller sample size than claim 1 (one data point per country instead of one data point per person) and a much narrower range of incomes than claim 2 (perhaps 1 doubling of income for a single country over a few decades, versus more like 5 doublings between a poor country and a rich country).

I think of cash transfers as giving people a bit of economic slack. Which I think of as a good thing as it allows them a chance to make a choice on how to spend those resources and potentially get better at making choices.

However if all their choices aren't great, we should also be creating better options.

If 20 percent of children in third grade could read at at least the first grade level, what percentage of children that age who didn't attend school could do so?

This is maybe sort of a nitpick, but:

And it would be weird for marginal education to be bad in exceptional basket cases like Haiti, bad in well-to-do countries like the US, but good in the middle.

This seems like a weird claim in a context where you (a) haven't given any evidence that education is bad in the US and (b) all your examples of education being bad are demonstrating education being much worse than in most of the US.

It's not that I don't think education in the US is partly a positional good, but like, I definitely learned stuff in school. I'm a lot more willing to believe that the terrible schooling you cite is predominantly or even exclusively a positional good than that US schooling is.

She is starving herself, while pregnant, in order to save for her kids' formal schooling. This looks like a really bad outcome.

I'm not sure about this (I'm from amd was born in Nigeria (and this is based on my experience living here) if it's relevant). Insomuch as she wants to better the future of her children, then I think paying for their education—even if it's not really education—is necessary.

Also, all the poor educational studies have been focused at government schools. If she's saving money for her children's education, she's most likely not sending them to a government school. Parents generally send their children to private schools when they desire them to receive a good education (if they have the wealth). I suspect she was doing that.

Education is a real investment—while gaining an education may not mean much by Western standards—it is still better than the alternative; paying rent may not be the ideal way of living, but you need to put a roof over your heads. Giving her children an education is putting a roof over their futures.

Compare the life outcomes of those who got education vs those who didn't if you intend to criticise it. If I was in her place, I would have saved for my children's future as well. Her action struck e is selfless, and I understand the kind of motivation behind those actions. The "for my children at least I want a better future" kind of thinking. I've met someone from a home like that.

Education is the best investment you can make for your children in the developing world. You might criticise the adequacy of that education, but it doesn't change the fact of the matter.

I upvoted, but I can't say I agree.

Let's keep in mind that going hungry while pregnant is costing your child IQ points.

Underweight women have a 1.5x risk of having a low birth weight child and a 1.3x chance of preterm birth. Low birth weight kids are about 5 IQ points lower in adulthood than normal birth weight kids. For premature babies, that difference is about 11 points.

Roughly, in expectation, making yourself underweight during pregnancy should therefore be costing your kid 6 IQ points or so. (Plus additional risk of infant sickness and death, of course; being a preemie is bad for risk in pretty much every way.)

I would say that a world in which that looks worth it for your kid's future success and happiness is a pretty rigidly classist world. This becomes starker the worse neonatal medical care in your country is (and I don't have a good gauge for that in Nigeria.)

I'm not particularly skeptical that formal schooling improves measured individual outcomes such as income. But, so does owning government bonds.

I'm saying formal education is the best intervention a non upper-class individual can make in the life of their children in developing countries.

That is, of course, consistent with it being net neutral to give people money which they spend on school fees, if the mechanism here is 'there are X good jobs, all of which go to people who've had formal education, but formal education adds no value here'. In that scenario it's in anyone's interest to send their kid to school, but all of the kids being sent to school does not net improve anything.

It seems kind of unlikely to me that primary school teaches nothing - and even just teaching English and basic literacy and numeracy seems really valuable - but if it does, that wouldn't make this woman irrational while it would make cash transfers spent on schooling poorly spent overall.

If there is substantial inequality it may still be beneficial on balance to give the poorest people money which they spend on purely-positional school fees.

I feel like this misses the point of positional goods--suppose that only half of the population gets a badge that says they're in the top half of the population, whose price is set by auction. A cash transfer from some people to other people can't increase the number of badges, and can only change which people get the badges.

Right. But I'm saying that such a cash transfer may still be utility-positive even though rearranging the badges doesn't change the number of badges. (Which is not to say it's the most utility-positive thing that could be done with the cash, of course.)

Forget the badges for a moment. Transferring cash from richer people to poorer people is always utility-increasing. (In Econ-101-land where we ignore the value-destroying things the richer people may do to avoid having their cash transferred to others, the motivation-destroying effects of knowing that money you earn will be transferred to others, etc.) That's because the marginal utility of money decreases with how much money you have, because you buy the better-value utility sources first.

What about the badges? Well, they're just another good that people can buy. Their positionality has the exact same effect as any other kind of scarcity (e.g., imagine that the badges are magical artefacts that confer health and happiness, and their number happens to be restricted to half the population because that's how many badges were made by the ancient wizards).

But: It seems to me that if the badges are priced by a market mechanism, and valuable enough that they would be the first things the poor half of the population bought if they had the money, and scarce in the way described here -- why, then, they would be more expensive, enough so that they would not after all be the first thing (rationally self-interested Homo Economicus) poor people would buy on getting more money, unless that money was sufficient to make them as rich as the rich people who are currently buying the badges.

(Because the badges will go to whoever's willing to pay most for them, and if the badges are the first things poor people buy on getting more money then they are better utility-for-money value than the things the rich are buying, so the rich will be willing to pay more for them, and the prices will increase until this is no longer true.)

So there is a problem with this picture, but in so far as school fees are a purely positional good -- and in so far as we're in Econ-101-land -- the problem isn't "giving poor people money that they spend on school fees fails to raise net utility", it's "even if we give them money that we might expect them to spend on school fees, the price of those will rise and they'll end up spending it on something else". The "something else" will be a good that isn't purely positional (else it too would increase in price until the poor people can't buy it) and giving poor people money to spend on that will be a clear utility gain.

Now, apparently what's actually happening is that some poor people are spending the money they get from cash transfers on school fees but (I guess) most aren't. What then? Staying in Econ-101-land, what this indicates is that different people have different values and the poor people who get most utility from having educated kids will do that. And that's an excellent, utility-maximizing thing -- what's happening is that we replace a rich person who doesn't care so much about education with a poor person who cares a lot more, and net utility goes up.

The real world, of course, is not Econ-101-land. Is it non-Econ-101-ish in ways that invalidate the above? It might be -- e.g., if those poor people are tragically misinformed about the good that education will do to their children. I don't see any particular reason to assume that's so, though.

(In the real world, education in the developing world is probably also not a purely positional good.)

From the downvotes I infer that at least one person reading the above finds it unsatisfactory. I would love to know why, so that if I'm thinking badly or writing badly I can try to improve.

If you give poor people money to spend on positional goods, the market will eventually respond, but it doesn't respond instantly. They may actually be able to be able to purchase the positional goods in the time it takes for the market to respond. Furthermore, if you give the money to only a relatively small number of poor people, the effect of your money may not be enough for the market to respond much.

Now, apparently what's actually happening is that some poor people are spending the money they get from cash transfers on school fees but (I guess) most aren't. What then? Staying in Econ-101-land, what this indicates is that different people have different values and the poor people who get most utility from having educated kids will do that.

But you're interested in making the donations effective. If only a small portion of the recipients will spend them in utility-increasing ways, you have to discount the effectiveness accordingly.

Well, that's a bad analogy for schools fees. They usually result in skills transfer.

I'm not claiming that they are. I'm saying that even if we assume they are -- i.e., in the worst case for cash transfers as far as this issue goes -- giving money to the poorest people which they spend on those school fees may do good overall.

Formal education does improve skills and knowledge, so it's not merely a positional good.

It might be the best intervention for the individual because buying education is a way to signal high status that's required for getting a good job.

That alone doesn't mean that the society is better of if you give some of it's members the opportunity to signal high status by paying school fees via cash transfers.

That means that even when the individuals make rational decisions it's not a good charity intervention.

Education is not mainly a form of signalling.

Getting an uber expensive education is signalling, getting an education itself is not.

By poor third world country standards, all education is uber expensive.

Private education in the third world is quite inexpensive - cheap enough to be affordable to a substantial fraction of the poorest families - according to The Beautiful Tree ( ).