Patterns of income formation and expenditures among the urban poor of Cartagena

긔 At the 1-ime when this study was conducted, both authors worked in the Water Supply and Urban Development Department of the ,,Torld Bank. Daniel Kaulmann, an EConcmist, now works with the East Africa Industrial Development and Finance Division, and t Lichael Bamberger, a Socioiogist, is a Regional Training Coordinator with the Economic Development Institute. Final Report Research Project ZNTo. 672-57. Patterns of Income Formation. and Expenditures Among PooJr Urban Households in Cartagena, Colombia. Th,:! 5 working papers published on the study (4 in English and IL in Spanish) are 'Listed at the end of this report. -'i P a L. L. _L TnStitUto , -ldwork an' inil-ial da-a analys48 were conducted by the _L SER de 1riveEtigacion, a Colomb.-f-an non-profi- social research institution. The alathors are arateful to the staff of SER and particularly to Dr. Eduardo Velez, for their cooperation t'lfroughout this project. The anthropological studies were conducted by Scoct .11arris with guidance provided by Professor Lisa Peattie. Anna Sant'Anna provIded guidance on some of the policy __npl'cat-'ons of the study. Data dnalysiss in Washington was conducted very - I " y -)y Claudia Franco. Finally the authors would like to thank their -3 1 a a g - gue- -1a the ' -in Amercan Urban Division, particularly Eric Canessa and ikoor Persaud "or their encouragenent and guidance throughout the stud-v. C ABSTRACT This is the.final report on the study "Patterns of Income Formation and Expenditures Among Poor Urban Households in Cartagena, Colombia" (RPO 672-57). The purpose of the study, which built on earlier work in El Salvador and the Philippines, was to investigate the functions and determinants of interhousehold transfers of money, goods and services among poor urban households and to consider the policy implications of these transfers for the design and implementation of future urban projects. The study was conducted in the Zona Sur OrientaL of Cartagena, in a low-income, largely squatter area in which the World Bank was developing an integrated upgrading project. The project inciuded land reclamation, upgrading of basic services and credit and technical assistance for housing and community improvement projects. The project was intended to affect, directly or indirectly, most of the estimated 100,000 population of the Zona. The research involved the application of a questionnaire covering demographic and economic characteristics of the households and their interhousehold transfers of money and goods, to a representative sample of 507 households; and a series of in-depth anthropological case studies with some of these households. This Final Report describes the origins and context of the research, the main findings and the policy implications. The findings clearly demonstrate the quantitative significance of interhousehold transfers and the important functions of transfer networks as an informal social security system and as a source of investment funds for shelter and other types of development projects. The magnitude of the transfers is such that, if they were taken into account in project design, they could significantly affect estimates of project affordability. One of the objectives of the study which could not be fully realized was an analysis of the effects of urban infrastructure investments on interhousehold transfers, as the earlier studies in El Salvador and the Philippines had demonstrated that transfer receipts will often increase in response to a perceived investment opportunity. Due to delays in the original project implementation schedule, at the time the fieldwork was conducted in mid 1982, physical works had either not begun or were at an early stage in many sectors of the project area, so that the potential impacts of infrastructure improvements could not be studied. The reader should be aware that the report refers to the situation of the project in mid 1982. By June 1984 approximately 60% of physical works had been completed and it is estimated that all physical works and other components will be completely implemented during 1985. The report recommends that if resources were available, it would be useful to conduct a rapid follow-up study to evaluate whether the infrastructure improvements have in fact affected transfer behaviour. Table of Contents Page No. 1. The Origins and Context of the Research..................1 1.1 Background...................1 1.2 The Cartagena Urban Development Project and the Characteristics of the Project Zone.............3 1.3 Objectives of the Research......... ... ........5 1.4 Research Methodology................5 2. Main Findings of the Study...............7 2.1 The Magnitude of Transfers, Their Origin and Stability.... .......7 2.2 The Determinants of Transfers.............8 2.3 Transfers and the Pattern of Expenditures.................9 2.4 The Structure of Social Networks and the Patterns of NetworkUsage...........10 2.5 The Impact of the Project on Transfer Flows...........12 3. Policy Implications....... .....14 3.1 The Function of Transfers as a Social Welfare Me'hanism... ......14 3.2 The Effects of Transfers on the Estimation of Project Affordability................ 3.3 Social Networks and Labor Mobilization: The Implications for Self-Help House Construction..........19 3.4 Policy Instruments to Stimulate Interhousehold Transfers.............................20 4. Summary and Conclusions..............22 References.... ...................................................24 Reports available on theresearch............25 1. THE ORIGINS AND CONTEXT OF THE RESEARCH 1.1 Background The present study has its origins in earlier studies in El Salvador and the Philippines on the determinants of a household's willingness and ability to pay for shelter and urban services. These studies questioned the conventional economic wisdom that labor market earnings are the only significant and stable source of income for most low income households in developing cities, and that estimates of the affordability of urban shelter projects should be based exclusively on labor market earnings (see Keare and Jimenez, 1983). Although the existence of interhousehold transfers was recognized, they were usually not taken into account in the affordability estimation, on the assumption that the transfers were small, unstable or difficult to measure. It was found in both El Salvador and the Philippines (Kaufmann, 1982) that one of the main sources of income for large numbers of households was transfers received from other households. Moreover, these transfers were found to be as stable a source of income as labor market earnings. For female headed households and other groups with limited access to labor market earnings, these transfers could represent up to 50% of regular household income. A review of the sociological and anthropological literature (discussed in Working Paper Nos. 1,3 and 4) suggested that these transfers were part of a social -2- support network* with important social welfare functions for those sectors of the urban population with only limited access to formal labor, credit and housing markets and to formal social security programs. These social networks provide securityin terms of emergency (illness, death, childbirth, etc.) and to help ensure a relatively stable consumption stream of basic needs. They also provide a source of development funds and other forms of assistance (accomodat'ton, labor, access to contacts and information) to permit households to take advantage of investment opportunities (housing, small businesses, education, etc.). Based on the initial findings of the El Salvador and Philippires studies, the Urban and Regional Economics Division**, at the request of the Latin American Urban Projects Division (LCPUR) designed a similar study related to an ongoing urban upgrading project in Cartagena. The Southeast Zone, where the project was being implemented, was a very poor area, and the Bank wished to understand some of the determinants of willingness and ability to pay for the project services and to identify ways to mobilize resources for housing investment. The issue of interhousehold transfers was of particular interest as it was believed that households were receiving significant income transfers from relatives in Venezuela. *For the purposes of the present study, Social Support Network is defined as a set of individuals or households who regularly assist each other through the exchange of money, goods, services or the provision of accommodation. See Working Paper No. 1. **As a result of Bank reorganization, responsibility for the research was transferred to the Water Supply and Urban Development Department. - 3 - 1.2 The Cartagena Urban Development Project and the Characteristics of the Project Zone* Over the past 3-4 decades, Cartagena has grown rapidly as a result of the expansion of manufacturing, refining and tourism; and as a consequence of the rural exodus caused by the political conflicts ("La Violencia") of the 1940s and 1950s. One major site of the city's absorption of migrants has been its Southeast Zone (SEZ), which has grown from a population of over 41,000 in 1964, to an estimated 80,000 to 100,000 at the present time. The Zone is close enough to commercial and tourism centers to make it attractive to workers in both formal and informal employment sectors. The cost of owning or renting dwellings in much of the SEZ has 'moreover been low enough, relative to Cartagena as a whole, to attract many low-income households. The Southeast Zone, in which the World Bank project is being developed, is a narrow strip of low-lying territory bordering the southern edge of the Cienaga (Lagoon) de Tesca, also known as thd Cienaga de la Virgen. It stretches about 6.5 kilometers in length and only some 400-500 meters in expanse south from the swamp's edge. The 355-hectare zone can be topographically divided between those very low- *The Field research was completed by mid 1982 and consequently findings and discussion relate to the status of the Bank Project of that time. The study is not intended as an evaluation of the Project and should not be interpreted as such. -4 lying areas 1.5 meters or below in elevation, which border the lagoon, and those above 1.5 meters, which are incorporated into the more physically consolidated parts of the project area. The Southeast Zone can be broadly divided into 3 sub-zones characterized by different degrees of physical consolidation. Closest to the thoroughfares which form the SEZ's southern boundary is the consolidated zone. This higher-lying area is characterized by the presence of more paved streets, more concrete side-walks and more houses built of masonry than other areas lying closer to the lagoon. More houses are legally connected to water supply and electricity. At the opposite-end of the zone, bordering the swamps, is the marginal zone which is characterized by the presence of more wooden houses, and fewer pathways by the absence of paved streets, and poorer water and electricity services. Many structures near to or over swamp waters, and are built on top of piles driven into the lagoon. Most of the structures slated for relocation by the urban project's implementing agency are located in the marginal zone. In between the consolidation and the marginal zones there is an intermediate zone in which features of the first two zones are me-ged. The Cartagena Urban Development Project, the second Bank urban development loan in Colombia, was approved in 1979. The project is an integrated upgrading project designed to improve the living conditions of the estimated 100,000 people living in the Southeast Zone of the city (SEZ). The project included: land reclamation to raise street and house levels; construction and improvement of drainage canals, street drainage and community centers. Loans and technical advice were provided to community groups and households for the regularization of -5- land tenure; paving of sidewalks and pedestrian streets; installation of secondary water and sewerage lines; house connections for water, electricity and sewerage; dwelling construction and improvement; and purchase of serviced sites for house construction. 1.3 Objectives of the Research The research project had the following objectives: (1) Estimate the magnitude of interhousehold transfers in the Zona Sur of Cartagena. (2) Study the determinants of transfers. (3) Evaluate the present and potential interactions between the World Bank project and the magnitude and uses of transfers. (4) To evaluate the policy implications of transfers with respect to: (i) The estimation of project affordability. (ii) The stimulation of transfers as a way to increase project affordability and to mobilize financial and human resources for the project. (iii) Impacts on social welfare through an informal social security system and the stabilization of basic needs consumption. 1.4 Research Methodology (For details see Working Paper No. 3) The conceptual framework on which the research was based emphasized the following: (a) Most poor urban households are faced with unpredictable income streams combi2ed with limited access to social security programs in time of illness or other household emergency. (b) Faced with the above situation, poor households have a strong incentive to reduce the risk of falling below a basic needs -6- consumption level or of being unable to mobilize resources in times of crisis. Given their lack of access to formal labor market, credit and social security institutions; poor households will tend to develop their own informal social security arrangements through interhousehold social networks. (c) Under these circumstances when a household's economic situation has temporarily improved it is economically rational for them to help other members of their network, with the expectation that the assistance will be reciprocated when fortunes are reversed. (d) There is an expectation on the part of both the donor and the recipient that transfers will be used to cover basic needs consumption, rather than less essential expenditures. Consequently transfers will frequently be "earmarked" and will affect the composition of household expenditures. To test the hypotheses derived from the above framework, an interdisciplinary approach was used with the study being designed and implemented by a team Kf economists, sociologists and anthropologists. In depth, ethnographic case studies were combined with the application of a structured questionnaire to a stratified random sample of 505 households. The questionnaire identified the members of the social network and then obtained detailed information on the types, magnitudes, determinants and uses of interhousehold transfers. Information was obtained on the ways in which households had been effected by the Bank project and on the influences of the project on the receipts and remittances of transfers. -7- The survey analysis combined a descriptive analysis of the structure and usage of social networks with the application of an econometric model whose purpose was to evaluate the determinants of transfers and their impacts on household expenditure patterns. A two stage regression model was used so as to analyze separately the "eligibility criteria" for receiving transfers, and the factors determining the amount of transfers received. 2. MAIN FINDINGS OF THE STUDY 2.1 The Magnitude of Transfers, Their Origin and Stability Interhousehold monetary transfers received by SEZ households averaged 10.3% of their net (before transfer) income.* When the imputed value of in-kind transfers is included the proportion increases to 12.5%. Total Network Usage (the sum of transfers given and received) is equal to 20% of Net Household Income. Transfers exceed other non-labor income (9.8%). For certain segments of the population interhousehold income transfers are particularly significant: 16.1% for female-headed households; 24.3% for households in the lowest quintile; and 51.6% for female-headed transfer receivers in the bottom quintile of the earnings distribution. About 72% of transfers are in money, and 28% in-kind (food and clothing). Contrary to previously held notions, the main transfers flows were not from the well-off to the poor. Although the great majority of *See Working Paper No. 1, Table 3.1. -8- dwellers in the SEZ are in the bottom 40% of the Cartagena income distribution, the total of transfers given out by SEZ dwellers was marginally larger than the total amount of transfers received. Furthermore, a very significant fraction of households in the.lower two quintiles of the SEZ income distribution are transfer givers. For male- headed households, 53% receive transfers and 51.5% give out tranfers. For female-headed families the percentages are 56% and 31%, respec- tively. In spite of the large outflow of migrant workers to Venezuela and the higher earning potential for those workers, remittances from them to SEZ households, albeit important, are significantly less than interhousehold transfers within SEZ. Over two-thirds of transfers were received from households living within Cartagena and over 40% were from the SEZ, as opposed to only 14.2% of transfers being received from Venezuela. The net effect of transfers from outside the Zona, is to increase total Zona income by 1.2%. The total impact is low as only about 15% of households receive transfers from outside the Zone. Transfers appear to be significantly more stable than previously thought. Eighty percent of households who had received a monetary transfer during the previous year had received at least two transfers in the previous four months; 50 percent of the households received it monthly or more frequently. For in-kind transfers, 63,2% of transfer receivers got them at least once a month. 2.2 The Determinants of Transfers Statistical analysis and in-depth interviewing identified many socio-economic variables which were . portant in explaining transfer receipts and remittances. Income appears to be a significant -9- determinant of transfer flows, in particular for explaining transfers received by low-income households. Households with either young or old heads receive more (net) transfers than middle-aged ones controlling for income. Female-headed households tend to receive more transfers after controlling for income, although there is no difference between male- headed and female-headed households with respect to the probability of receiving transfers. Wealth variables -- value of the house, animals, durables -- are associated negatively with the probability of a household belonging to a transfer network. For those households who do belong to a transfer network, the probability of giving out transfers is higher if the house- hold has more wealth. If a member of the household is affiliated to work-related social insurance, there is a lower probability of belonging to a transfer network. Conversely, a high dependency ratio increases the probability of network usage. 2.3 Transfers and the Pattern of Expenditures Compared with households whose main source of income is labor market earnings, households that receive a high proportion of their income from transfers tend to spend a higher proportion of income on basic needs items (food, health, education, housing), and a lesser proportion on non-basic needs items, (although only the latter results is significant). This suggests the existence of a weak "earmarking effect." - 10 - 2.4 The Structure of Social Networks and the Patterns of Network Usage (a) General Virtually all SEZ households belong to an interhousehold network comprised of both kin and non-kin. The average network involves between 6 and 10 households and only 6% of households have fewer 3 network contacts. The networks tend to have a wide geographic spread including an average of 2 to 4 households in Cartagena and a further 2 in other parts of Colombia or in other countries (particularly Venezuela). Female-headed households have access to less network contacts than male heads. However, there was no apparent relationship between income and size of network. (b) Patterns of Network Usage When households were classified according to their monetary transfer behavior; 27.1% were GIVERS (who gave but did not receive); 18.8% were USERS (who both gave and received); 22.2% were RECEIVERS (who received but did not give); and 31.8% were NON-USERS (who neither receive nor gave). The net monthly income (income excluding transfers) of GIVERS was statistically higher than that of the other 3 groups, suggesting that there is a tendency for transfers to flow from higher to lower income households within the Zona. Although the difference between the other 3 groups was not statistically significant, the mean income of RECEIVERS was at least 17% lower than USERS and NON-USERS - 11 - showing that households who most benefit from transfers were in general those with the lowest monthly income. When transfer income is taken into account the distribution of total income changes significantly. The total household income of RECEIVERS increases on average by 25% and is now slightly higher than NON-USERS; and the income of transfer USERS increases by 18%, moving closer to (although still substantially below) that of transfer GIVERS. A redistribution of monthly income is clearly taking place among socially interactive households. It should be noted, however, that the figures refer to monthly income so the effects may be only temporary. Some interesting differences were found between the patterns of transfers being sent from, and received by, Zona households. In general households sending transfers to the Zona had a younger head, and a higher economic level than the recipient Zona household. There was also a high proportion of receipts from sons and daughters, of which 15% came from Venezuela. In contrast almost no Zona households sent monetary transfers to their children. Although parents are prepared to provide accommodation for their children or grandchildren, it seems to be assumed that once Zona children set up their own home they cannot expect financial assistance from their parents. (c) Transfers of People Through the Social Network About 15% of Zona households had at least one temporary member living with them, and a similar proportion had at least one member temporarily absent. Temporary members of Zona households would appear to be an economic burden as 65% were under 20 and only 25% were economically active. In contrast, over 60% of temporarily absent - 12 - members were working and the remittances received by Zona households from their absent members produced a net increase of 3.7% in total household income for these 2.5 The Impact of the Project on Transfer Flows The earlier studies in El Salvador and the Philippines showed that, under certain circumstances, participation in a shelter project may increase the flow of transfers. The above studies did not include questions on why the projects affected transfers so it was not possible to determine whether the transfers were intended to help families cover their basic needs or to help them take advantage of an investment opportunity. However, both the El Salvador sites and services and the Philippines upgrading projects were perceived to be attractive investment opportunities, and this was assumed to be one of the main (although not necessarily the only) motivation for the increased transfer flows. In the present study, the econometric analysis did not detect a relationship between monetary transfers and participation in the project. However, there was a significant increase in the flow of labor to households affected by the project. Several factors explain the differences between the present and earlier studies. - First, the implementation of the Cartagena suffered a number of unexpected delays so that when the study took place, most Zona house- holds did not have a very positive perception of the merits and prospects of the project. One of the principal components of the project was to raise the roads above the flood level, which meant that families were obliged to raise their houses to the level of the new road before the rainy season in order to avoid being flooded. The better off - 13 - families took advantage of this situation to rebuild their houses, but many of the poorer families were obliged to make a considerable investment in landfill and ad hoc procedures to raise the level of their floor without being able to rebuild the whole structure. At the same time the land tenure issue had not been resolved and there were rumors that many households would eventually have to be relocated. Under these circumstances the project was not perceived as an attractive investment and consequently it was not likely to stimulate increased transfers for investment purposes. It in important to stress that the findings of the survey refer to the specific point in time (March 1982) at which the survey.was conducted. The research team revisited the project after implementation had progressed much further, at which time the image of the project was much more favorable. It is quite possible that were the study to be repeated project participation would be found to be associated with increased transfer flows. Under the above circumstances it might have been expected, however, that the need to raise the level of the house would have been considered as a basic need and would consequently have induced increased monetary transfers. Although the social network did provide labor to help with "digging out" there were no increased monetary transfers. The intensive interviews confirmed the findings of Peattie and others that among very poor families in a warm climate like Cartagena, housing is very low on the list of basic needs. Despite the lack of monetary flows, the provision of labor made an important contribution to the upgrading process. This took the form both of assistance to individual families and community cooperation - 14 - to upgrade a neighborhood. The importance of labor is illustrated by the difficulties of many female-headed households who did not have access to labor through a network to help "dig out" their houses. 3. POLICY IMPLICATIONS 3.1 The Function of Transfers as a Social Welfare Mechanism In common with the low-income population of other developing cities, most households in the Southeast Zona have low and unstable labor market earnings and very limited access to public welfare systems. Households are aware that in times of emergency or during periods of prolonged unemployment, they will be obliged to rely on their own resources or the assistance they can obtain from relatives, neighbors or friends. Given the high levels of unemployment and the fact that 65% of households reported at least one emergency during the previous 5 years; it can be seen that having access to an informal support system becomes extremely important. As shown earlier the regular transfer beneficiaries included a high proportion of female-headed households and other groups with limited access to labor market earning. In evaluating the social welfare functions of transfers it is important to appreciate that over 40% of the poorest households did not receive a transfer during the previous 12 months. This means that considerable numbers of needy households either did not wish to ask for help from their networks or did not have access to a network which could help them. In other words the interhousehold network shoudl not be perceived as a comprehensive safety net able to offer assistance to all households in need. - 15 - Interhousehold transfers can be seen as providing an informal social security system for the majority of low-income households who do not have access to formal social security. Some of the main social welfare functions which are discussed in more detail in Working Papers Nos. I and 4 are the following: (a) Providing Assistance in Times of Emergency During emergencies such as death, illness, childbirth or temporary abandonment by one spouse (it is common for a man to maintain more than one household), the social network provides immediate assistance without which the household would be in truly desperate straights. The assistance may take the form of money, taking care of children, providing food, basic necessities and accommodation. Fifty- five percent of households reported having received help from their social network during at least one emergency during the past 5 years. (b) Providing Regular Income Maintenance Whereas most families experience occasional emergencies, there is a substantial number of households who, due to lack of wage earners or the limited access to the labor market, are continually in a situation where their income is insufficient to cover basic needs expenditures. Some of the categories in this group include old people, female-headed households, the incapacitated and other with very limited labor market skills. Many of these households receive regular support in the form of money, goods or accommodatiom. TI-e operation of these income support systems is discussed in more detail in Working Paper No. 1. One very important way in which support is provided is for a household to provide food and accommodation to relatives or friends. - 16 - This can be provided on a temporary basis to adults or on a semi- permanent basis to young people who are essentially adopted. Families consider it is cheaper to provide accommodation than to give money. Approximately 15% of households had at least one temporary member staying with them. 3.2 The Effects of Transfers on the Estimation of Project Affordability The design and implementation of most urban shelter projects requires the estimation of ability and willingness of the target population to pay for shelter and services. In the past affordability decisions have usually been based on two assumptions: first that labor market earnings are the only significant and stable source of income for poor families and second, that households have very limited access to affordable credit. The present research project, and the earlier work in El Salvador and the Philippines suggest that these assumptions may seriously underestimate the capacity to pay and may lead to unnecessary exclusion of certain groups. The studies showed that a significant and relatively stable part of household income comes from transfers. When these transfers are included, net income for all Zona households increases by 12.5% while the increase can be over 30% for certain groups. The proportions found in El Salvador and the Philippines were at least as high. Clearly this will make an important difference to the way in which eligibility criteria are defined. Another finding is that when a project is perceived as having an attractive investment pottx'.al, the amount of transfers received may substantially increase. Although this had not occurred in Cartagena at - 17 - the time of the study (due to the delays in project implementation discussed in Section 2.6), the potential importance of this effect can be seen from the fact that in the Philippines transfers increased the income of some households by as much as 50% during the most .intensive period of reblocking. This finding, confirmed also in El Salvador, suggests that when the investment potential is perceived to exist, households are often able to mobilize considerable resources through their transfer networks. The existence of these transfer flows may again serve to raise the affordable level of shelter or services. The upgrading household will have access to the network,s financial resources only if such upgrading is perceived as a sound investment, from which the network may expect a fair return. In other words, that portion of the network's resources which is available as a substitute to the imperfect capital market appears to be allocated according to sound economic criteria. When reviewing household income data during project design, it is therefore important not only to include transfers in total income, but also to consider the likely scenarios under which the project may stimulate additional transfer flows. The calculation and interpretation of any measure of affordability and of willingness to pay for project components could vary significantly depending on these household perceptions and objectives, since both the potential access to the network's resources and the household's demand for the project component could vary. (a) Should transfers be taken into account in the estimation of project affordability and the selection of participants? - 18 - Many project officers have argued that transfer income should not be taken into consideration in project design and participant selection, even where it is accepted that the transfers are quantita- tively significant. First, it is argued that transfers are not stable and hence cannot be relied on to help cover regular monthly payments. On this point there is evidence that for some groups of households (for example female-headed households) transfer income is both quantitatively important and more stable than labor market earnings. To ignore transfer income would produce a selection bias against these groups whose ability to pay is probably just as good as other groups more dependent on labor market earnings. Second, it is argued that transfer income is more difficult and expensive to estimate and is therefore not operationally practical to include in the selection process. Income estimation is a difficult field as there are a number of reasons why households may not wish to accurately report their income. For example they may wish to inflate their income to reach minimum selection criteria, or they may wish to understate their income so as not be cxcluded as being too wealthy. It is also difficult to measure income which fluctuates and which is obtained from a number of different sources. However, the studies conducted so far seem to indicate that regular transfer income is no more difficult to estimate than informal sector labor market earnings. It is, however, much more difficult to estimate occasional transfers which do not follow any regular pattern. Consequently it is recommended that regular transfer income (i.e. transfer which are received monthly or bi-monthly from the same person or which arrive in some other regular and stable manner) should be included in the estimation of household income for the purposes of participant selelction. - 19 - 3.3 Social Networks and Labor Mobilization: The Implications for Self-Help House Construction As reported earlier, although the upgrading process did not appear to have increased money transfers in the Cartagena setting, many households received assistance in the form of free labor provided by friends or relatives. The provision of this labor facilitated the upgrading process, as is evidenced by the difficulties faced by households who did not have access to this supply of labor through their social networks. In an area such as the Zona Sur, which is both poor and has a relatively high level of unemployment, it is likely that the provision of "abor will be at least as important a source of assistance as gifts or loans of money, particularly where housing is not considered as an attractive investment. Project planners should try to estimate the likely availability of free labor in project design and affordability estimates. Where such labor transfers do exist on a significant scale they may significantly decrease the monetary cost of upgrading and hence make projects accessible to poorer groups than would otherwise be assumed. The availability of self-help labor will vary considerably from project to project, and will depend in large part on the opportunitiy cost of labor. Studies in El Salvador, for example, showed that many proje.t participants were unwilling to participate in self- help coastruction due to the high opportunity cost of their time, which clearly contrasts with the situation in Cartagena. - 20 - 3.4 Policy Instruments to Stimulate Interhousehold Transfers Assuming it is agreed that interhousehold transfers can contribute to the mobilization of financial and human resources of shelter projects, the question arises as to whether means exist to stimulate or channel the flow of transfers. The following are some of the possible options: (a) Legalization of Land Tenure: Families in many upgrading projects do not have clear title to land and consequently no guarantee that they will receive the full benefits from any investments they make. In order to stimulate transfers it is essential that land tenure issues are resolved clearly and at a very early stage in the project. (b) Encouraging Subletting and Sale: In order to control possible abuses and in an effort to protect poorer and weaker households, many projects place controls on subletting and sale. Whatever their other benefits, these controls remove most of the investment incentives. Although provision should be made to ensure that sectors of the project population are not being forced out of the project, owners should be given as much freedom as possible to sublet and sell. In several projects, for example the Dandora sites and services project in Nairobi, poorer house-owners were actively encouraged to construct additional rooms to sublet to help cover project payments. Loans were available for this purpose. Similar policies could be pursued in other projects. - 21 - (c) Leveraging Transfers In order to obtain construction loans through the project, households could be required to obtain matching loans from friends or relatives. The ratio of project to transfer loans could be varied according to household income if this seemed appropriate. (d) Defining the Project Package in Terms of Investment Potential and Household Preferences: The willingness of households to invest and their ability to mobilize network transfers will depend partly on the promptness and efficiency with which the proje.t is implemented, and partly on whether the project includes the correct package of services to trigger invest- ments. Housing demand studies (for example Mayo 1983) have shown that demand for housing services varies from city to city and also by house- hold characteristics. In one city land tenure may be considered crucial; whereas in another access to water, sanitation or paved roads may be more important. A number of techniques such as hedonic price analysis (Mayo, 1983; Jimenez, 1982) can be used for the analysis of housing demand and the evaluation of consumer preferences. The combination of one of these quantitative techniques with in-depth interviews of the type conducted in this study, will help identify the project components likely to trigger household investments and stimulate increased transfers. - 22 - 4. SUMMARY AND CONCLUSIONS The purpose of the research, which built on earlier studies in El Salvador and the Philippines, was to investigate the magnitude, determinants and functions of interhousehold transfers and to evaluate their policy implications. The findings of the earlier studies were confirmed with respect to the quantitative significance of transfers. Monetary and in- kind transfers were estimated to be equivalent to 12.5% of net (before transfers) household income for all households in the project area of Cartagena, and the total flow of transfers (receipts plus remittances) was equivalent to 20% of net household income. Transfers were even more important for certain groups, representing 16.1% of net income for all female-headed households, 24.3% for all households in the lowest (labor market earnings) income quintile, and 51.6% for those female-headed households in the lowest income quintile who receive transfers. Although transfers have an overall importance, there are considerable variations in patterns of network usage. It is important to note that slightly over half of all Zona households did not receive any monetary transfer during the 12 months prior to the study. Even among households in the lowest income quartile, over 40% did not receive any transfers. Thus, although transfers are an important potential resource, they are not sufficiently universal to provide a guaranteed safety net for all households facing economic problems. To some extent households make a conscious decision as to whether to participate in a transfer network. The case studies revealed some households who made a - 23 - deliberate decision to be "transfer avoiders" (i.e. to neither give nor receive transfers), and others who were actively attempting to develop a transfer network. The results of the study have a number of potentially important policy implications. First, transfers have a number of social welfare functions related to the provision of assistance in emergencies, regular income maintenance support and credit and other forms of assistance to help households take advantage of development opportunities. Second, the quantitative importance of transfers suggests that they should be taken into account in the estimation of project affordability and in the evaluation of a household's ability to pay for a project. For some households, the inclusion of regular transfers can increase the estimated household income by as much as 30%, which can obviously have an important effect on selection criteria. It is argued that regular transfers are no more difficult to measure than many other sources of income. Third, social networks can be important in mobilizing labor for house construction. This may reduce the monetary costs of certain types of projects and hence increase their accessibility. Finally, a number of mechanisms were suggested which could stimulate transfers. Some of these include: legalization of land tenure, encouraging subletting and sale, leveraging transfers by requiring matching funds for project loans and defining the package of project components to make them as attractive as possible to the beneficiaries. - 24 - References KAUFMANN, Daniel (1982) "Social Interactions as a Strategy of Survival Among the Urban Poor: A Theory and Some Evidence." Doctoral Dissertation, Department of Economics, Harvard University. KEARE, Douglas and JIMENEZ, Emmanuel (1983) "Progressive Development and Affordability in the Design of Urban Shelter Projects." World Bank Staff Working Paper No. 560. JIMENEZ, Emmanuel (1982) "The Value of Squatter Dwellings in Developing Countries." Economic Development and Cultural Change. Vol. 30, No. 4, pp. 739-752. MAYO, Stephen (1983) "Housing Demand in Developing Countries". Operations Support and Research Unit, Water Supply and Urban Development Department, The World Bank. - 25 - REPORTS AVAILABLE ON THE RESEARCH PROJECT Working Papers 1. The Structura of Social Networks in the Zona Sur-Oriental of Cartagena - Michael Bamberger and Scott Parris, Report No. UDD-50. 2. Income Transfers and Urban Projects: Research Findings and Policy Issues - Daniel Kaufmann, Report No. UDD-56. 3. Research Methodology: Design and Analysis Issues - Michael Bamberger, Daniel Kaufmann and Eduardo Velez, Report No. UDD-57. 4. Survival Strategies and Support Networks: An Anthropological Perspec- tive - Scott Parris, Report No. UDD-58. "Aspectos Metodologicos para Estudiar Patrones de Formacion de Ingresos y Gastos entre Familias Pobres Urbanas". Instituto SER de Investigacion, Bogota. (Detailed explanation of the research methodology, including the questionnaire, interview guide and code book.)