Nudging and Investment in Education : Why Cash Grants Fail to Raise Household Investment in Child Education in Developing Countries?

This study formulates a theoretical framework to shed light on why cash grants fail to increase parental investment in child education, and what can be done to increase their effectiveness. The paper asserts that consumption vulnerability, loss aversion, and information friction render lump-sum cash grants ineffective. Redesigning interventions as cost-sharing schemes significantly increase the willingness of parents to buy educational materials for their children. As a by-product, I have formulated a unique model of parental demand for investment in child education