Incentives in Brazilian Bolsa Família CCT Program: Adverse selection, moral hazard, improving mechanisms and simulations

Abstract

The <em>Bolsa Família</em> CCT Program (BFP) has successfully reduced poverty in Brazil. However, the theoretical literature on associated economic incentives is scarce. A mechanism-design analysis identifies problems of adverse selection and moral hazard in the BFP. The paper proposes simple improving incentive-mechanisms. The Citizens’ Contribution Mechanism (CCM) requires beneficiaries to devote time to the PBF encouraging recipients with higher income to leave. The Graduation Mechanism (GM) offers financial incentives to ensure sustainable emancipation of qualified beneficiaries. The Human Capital Incentive Mechanism (HCM) increases transfers to efficient municipalities. We show that the CCM solves the adverse selection problem, the GM solves the moral hazard problem of beneficiaries and the HCM solves a moral hazard problem of local managers. A simulation based on 2010 census data shows that the mechanisms allow, within 6 years, significant increases in the reach and precision of the PBF and yields cost reductions of over R$4.6 billion.

Significance of Independent Graduation for Beneficiary Families in Conditional Cash Transfers (CCT) Program in Indonesia

“…Second, graduation from the Bolsa Familia Program (BFP) is influenced by an income above the poverty line and the initiative to resign. In addition, graduation will increase the prestige and ease of accessing financial assistance for microcredit subsidies [10]. Third, graduation from the Progresa Oportunidades Prospera (POP) program in Mexico.…”