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

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dc.description.abstract The Brazilian Bolsa Família CCT Program (BFP) has been widely acclaimed as a successful example of poverty and inequality reduction public policy. However, the theoretical literature on associated economic incentives is scarce. The aim of this paper is to identify possible adverse incentives in the design of the BFP and to propose alternative mechanisms to minimize them. The paper builds a decisiontheoretic model for agent time allocation to work where citizens differ in their productivity capabilities. The model shows that the BFP is liable to both adverse selection and moral hazard problems. Them, we propose three incentive mechanisms to be appended to the design of the program. First, the Citizens’ Contribution Mechanism (CCM) requires a certain amount of hours to be devoted to the PBF and, thereby encourages BFP recipients with income above the poverty line to leave the program. Next, the Graduation Mechanism (GM) offers a wide reach of financial incentives to assure a sustainable emancipation to those whose productivity level would allow them to barely escape poverty. Third, the Human Capital Incentive Mechanism (HCM) increases transfers to municipalities that efficiently manage the previous mechanisms. We show that the CCM solves the adverse selection problem, the GM solves the moral hazard problem in the part of beneficiaries and the HCM solves a moral hazard problem in the part of the local managers of the program. Finally, a careful simulation based on 2010 Brazilian census data shows that the mechanisms are cost-effective and allow, within the timeframe of 6 years, a significant increase in both the reach and the precision of the PBF, overall, the simulations show that the mechanisms produce cost reductions running from over 2 billion Brazilian reals (in the pessimistic scenario) to over R$4.6 billion in the optimistic case. The savings can be used to expand the program to include almost 2 million households (in the pessimistic environment) and over 4 million families (in the optimistic situation). The proposed mechanisms are especially suitable in the socio-economic environment Brazil faces presently, with severe budget restrictions and total impossibility of increasing public expenditure. en
dc.title Incentives in Brazilian Bolsa Família CCT Program: Adverse selection, moral hazard, improving mechanisms and simulations en
dc.contributor.author Soares Bugarin, Mauricio
dc.contributor.author da Silva Santo, Artur Henrique
dc.contributor.author Duarte, Janete
dc.contributor.author Amaral Júnior, João Bosco
dc.contributor.author de Anchieta Semedo Neves, José
dc.contributor.author Portela de Oliveira, Plinio
dc.contributor.author Regatieri, Rebeca Regina
dc.contributor.author de Brito Gadelha, Sergio Ricardo
dc.date.accessioned 2015-10-14T02:53:19Z
dc.date.available 2015-10-14T02:53:19Z
dc.date.issued 2015-10-14
dc.identifier.uri http://hdl.handle.net/123456789/52972
lacea.language.supported en
dc.description Working paper
dc.language.iso en
dc.subject Conditional Cash Transfers
dc.subject Inequality
dc.subject Incentives Theory
dc.subject Asymmetric Information
dc.subject Targeting
dc.type Working Paper

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