Needs-Based Targeting of Anti-Poverty Transfers: A Self-Fulfilling Prophecy? Evidence from a Lab-in-the-Field Experiment in Rural Uganda

While poverty has continued to persist, policy makers have implemented a range of anti-poverty transfer programs. Various strands of economic and psychological literature have documented both intended and unintended effects of anti-poverty transfers, including increased feelings of inferiority. This study extends the literature by examining how anti-poverty transfers may lead to such feelings of inferiority and hence also to lower investments. First, we develop a theoretical model in which individuals internalize signals from transfers. We predict that recipients of targeted transfers will negatively update their beliefs about their returns to investments and therefore reduce investments, compared to similar recipients of universal transfers. Next, we will test the model’s predictions withWe organize a lab-in-the-field experiment in rural Uganda to test whether participants internalize signals from either needs-based or universal anti-poverty transfers, and change their investment decisions accordingly. Our results will help to understand the impact of different types of anti-poverty transfers, and thereby help to design effective anti-poverty strategies.