Household Responses to Cash Transfers

This paper exploits the experimental setup of the cash transfer program PROGRESA (Programa de Educacion, Salud y Alimentacion) in rural Mexico to estimate a collective model of the household in order to investigate how parents allocate household resources. We show that household decisions are compatible with the testable implications of the collective model, based on so-called distribution factors, at the beginning of the program but reject them later on. We discuss a number of possible explanations for these findings and provide several arguments, consistent with our model, suggesting that this rejection may indicate that the treatment is not only empowering women but also possibly changing individual preferences.