Targeting efficiency and take-up of Oportunidades, a conditional cash transfer, in urban Mexico in 2008

Oportunidades is a Conditional Cash Transfer (CCT) that uses a proxy means-test targeting model to select eligible households for the programme. According to the Income and Expenditure Household Survey of 2008, approximately two in every three eligible rural households participate in Oportunidades, whereas only one in every three eligible urban households receives the Oportunidades cash transfer. This research explores the factors behind this lack of take-up, the costs of participation and the implications of targeting inefficiency on the programme’s impact on income poverty. It argues that a sample selection model is a pertinent tool of analysis as it informs on the distribution of cash transfers conditional on household eligibility. This conditional distribution is also used to understand the costs of participation as a latent variable. Eligible households are less likely to invest in human capital and neither the cash transfer nor the income forgone by children and teenagers are sufficient to overcome these costs of participation. By identifying a method to quantify behavioural change of households, I associate the costs of participation to the difficulties of inducing health-related behavioural change among recipients and eligible non-recipients. At an aggregate state level, targeting inefficiency is not fully explained by only looking at the budget constraints of the programme. In fact, targeting efficiency is positively associated to aggregate behavioural change and negatively associated to aggregate costs for participation at state level. Yet, targeting efficiency does not guarantee impact on income poverty and Oportunidades’ highest impact on income poverty also associated with the inclusion of non-eligible households in the programme. This research reconsiders the importance of the context in which CCTs are implemented and informs on the conflicting aims of CCTs: providing income poverty relief via cash transfers and incentivizing behavioural change by conditioning the cash transfer in health and education investment.