CCts are Cash transfers that are targeted to the poor and made conditional on certain behaviours of recipient households.Economists might think of at least two kinds of disadvantage associated with attaching conditions to cash transfers. First, some of the neediest households might end the conditions too costly to comply with and may thus be deterred from taking up the benefit. Conditions thereby might exclude some of the people the program aims to reach. Second, those households that do opt for the bene t may incur a costly distortion to their own behaviour for the sake of a little extra cash in the short run. Perhaps they know how bad the local school is perhaps it is wasteful for the children to spend time there, rather than learning how to tend the elders or how to weave a basket with their parents. By pushing poor households to do something that they would otherwise not be doing, CCts might be imposing costly distractions on people who are trying to do the best thing for their families under conditions of severe scarcity.Proponents of CCt programs should have good answers to questions and arguments such as those posed above. There are, in fact, a number of good reasons for attaching conditions to targeted cash transfers. This chapter reviews the case for conditioning and briefly discusses some of the empirical evidence on how likely it is that circumstances that justify conditions are found in practice.Low investment High investment:The economic rationale for Conditional Cash transfers school, the lower the desired investment in education changes in the remaining arguments shift the function up or down in this space. For instance, a decline in the expected returns to education, a rise in the discount rate, or a reduction in the levels of other income sources available to the household would shift the investment function in figure 2.1 from a position such as that denoted “original” to one such as that denoted “shifted.” this simple framework can be used to investigate the effects of the distortions mentioned above.Misinformation or Persistently Misguided Beliefs suppose that, for some reason, potential beneficiaries are poorly informed about the future returns to education. Of course, if this is a simple information asymmetry with no mechanism causing the incorrect belief to persist, then the optimal policy intervention is to address the information problem-say through a publicity campaign. But processing information may be costly. Being convinced about the health benefits of greater schooling, for instance, may require time and effort to process the evidence. In addition, certain beliefs may be self-reinforcing so that when agents act on the basis of the beliefs, the outcomes confirm them, even if alternative beliefs would have led to superior outcomes. It is possible that large groups of people may then believe that returns to education are lower than they really are. A possible example is that of poorer families believing that effort is less important than connections in generating upward mobility, whereas those who are better-off believe the opposite, these beliefs can lead to different actions and thus to different outcomes that appear to confirm the initial beliefs-even though the poor also would have benefited if they had put in greater effort.Box 2.3 Fairness, Merit, and the “Deserving Poor people often Behave in ways that are inconsistent with pure self-regarding preferences. In particular, there is now a substantial body of experimental evidence suggesting that large numbers of people are altruistic rewarders or altruistic punishers in the sense that they are prepared to incur personal losses to reward behaviour they regard as socially fair or to punish behaviour they regard as unfair.the economic rationale for Conditional Cash Transfers” grown-up,” capable of the agency to resolve his or her own problems. the state is a partner in the process, not a nanny. This latter interpretation is particularly plausible when the counterfactual to a CCt is not an automatic, transparent, unconditional cash grant seen as a citizen’s entitlement, but instead, a myriad of ad hoc and mostly in-kind transfers, intermediated through various service providers, nongovernmental organizations, and local governments. under those circumstances, conditioning the transfers on “good behaviour” may be perceived as less paternalistic than the alternative of conditioning transfers on voting for a certain party or belonging to a given social organization.