The hidden drivers of social transfers: Understanding how risk perception influences social transfer decisions in Turkey

Abstract

Targeted transfer programs have gained significant attention as effective tools for poverty alleviation. While the targeting mechanisms in social transfer programs have been successful in identifying individuals in need, their implementation often encounters challenges and failures. This study seeks to examine the differences in risk perception among poor households regarding their participation in social transfer programs. A theoretical model was developed to explore the relationship between risk aversion and financial transfers, and the analysis was further supported by statistical and econometric methods using the Income and Living Conditions Survey of Türkiye. The findings indicate that, under varying levels of risk aversion, while the impact of economy-wide risks on the uptake of social transfers remains consistent, idiosyncratic shocks and changes in utility have differential effects on participation. Specifically, households with higher levels of risk aversion tend to participate more actively in social transfer programs. These results underscore the importance of households’ risk perceptions in shaping policies related to social transfers and poverty reduction. Programs should incorporate behavioral factors alongside economic indicators to improve efficiency and fairness. This study's validity is limited by the assumption of a constant risk aversion coefficient for all households, as individual risk preferences were not measurable.