Incentives for Small Families: Concepts and Issues

This paper examines the benefits and costs of client-targeted family planning incentives - public policies providing specified rewards of penalties for specified fertility-related behavior. Two rationales for incentives are discussed: first, where markets for contraceptives or contraceptive information fail, incentives can increase families' welfare by reducing barriers to the use of contraception; and second, where childbearing imposes external costs not borne by parents, incentives can align private and social costs, improving social welfare. These distinct rationales require distinct types of incentives. Incentive costs include economic costs of program administration; the fiscal (but not economic) cost of the incentive payments; welfare losses incurred if ill-informed or myopic individuals make choices they later regret. Little has been done to assess the costs and benefits of existing or proposed incentive schemes. A framework for doing so is presented. Preliminary evidence from an experiment in the state of Tamil Nadu in India suggests that incentives for short-term trail of contraceptives or for acquiring information may offer substantial benefits at low cost.