Efficient delivery of subsidies to the poor: Improving the design of a cash transfer program in Ecuador

Many governments provide monetary transfers to low-income families. The mechanism through which these subsidies are distributed may contain several inefficiencies that diminish the net-value obtained by the recipients. In this paper, we build and estimate a behavioral dynamic model that allows us to evaluate the efficiency of current and alternative distribution mechanisms. The proposed model is simple and resembles the individual's decision to collect the transfer. To estimate it, we use data from a cash transfer program in Ecuador where recipients incur high transaction costs each time they collect their benefits. Despite its simplicity, our model is able to replicate the observed data remarkably well. We use it to simulate alternative payment mechanisms and show that an adequate design of the delivery of payments can substantially increase the value of cash transfer programs.