Should Transfers to Poor Families be Conditional on School Attendance? A Household Bargaining Perspective∗

This paper considers the welfare implications of transfers to poor families that are conditional on school attendance and other forms of investment on their children’s human capital. Family decisions are assumed to be the result of (generalized) Nash bargaining between the two parents. We show that, as long as bequests are zero, conditional transfers are better for children than unconditional transfers, provided that the total amount transferred to the family is the same under the two transfer programs. The mother’s welfare (or rather, the welfare of the parent that cares relatively more for the children) may also be improved by conditional transfers. Thus, conditioning transfers to bequest-constrained families have potentially important and desirable intergenerational and intra-generational welfare effects. Conditioning transfers to families leaving positive bequests makes every family member worse off.