Transfers, Diversification and
Household Risk Strategies : Experimental Evidence with
Lessons for Climate Change Adaptation

While climate change is likely to
increase weather risks in many developing countries, there
is little evidence on effective policies to facilitate
adaptation. This paper presents experimental evidence on a
program in rural Nicaragua aimed at improving
households' risk-management through income
diversification. The intervention targeted agricultural
households exposed to weather shocks related to changes in
rainfall and temperature patterns. It combined a conditional
cash transfer with vocational training or a productive
investment grant. The authors identify the relative impact
of each complementary package based on randomized
assignment, and analyze how impacts vary by exposure to
exogenous drought shocks. The results show that both
complementary interventions provide full protection against
drought shocks two years after the end of the intervention.
Households that received the productive investment grant
also had higher average consumption levels. The
complementary interventions led to diversification of
economic activities and better protection from shocks
compared to beneficiaries of the basic conditional cash
transfer and control households. These results show that
combining safety nets with productive interventions can help
households manage future weather risks and promote
longer-term program impacts.