Working Paper: NBER ID: w28507
Authors: Lucie Gadenne; Samuel Norris; Monica Singhal; Sandip Sukhtankar
Abstract: Recent debates about the optimal form of social protection programs have highlighted the potential for cash as the preferred form of transfer to low income households. However, in-kind transfers remain prevalent throughout the world. We argue that beneficiaries themselves may prefer in-kind transfers because these transfers can provide insurance against price risk. Households in developing countries often face substantial price variation as a result of poorly integrated markets. We develop a model demonstrating that in-kind transfers are welfare improving relative to cash if the covariance between the marginal utility of income and price is positive. Using calorie shortfalls as a proxy for marginal utility, we find that in-kind transfers improve welfare relative to cash for Indian households, an effect driven entirely by poor households. We further show that expansions in the generosity of the Public Distribution System (PDS)—India’s in-kind food transfer program—result not only in increased caloric intake but also reduced sensitivity of calories to prices.
Keywords: inkind transfers; social protection; cash transfers; food security; India
JEL Codes: H42; H53; I38; O12; Q18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inkind transfers (F16) | welfare improvement (I38) |
| cash transfers (F24) | welfare improvement (I38) |
| inkind transfers (F16) | implicit insurance against price fluctuations (G52) |
| price fluctuations (E30) | caloric intake (D10) |
| PDS expansions (P30) | households meeting minimum caloric requirements (D10) |
| PDS value increase (H69) | sensitivity of caloric intake to market prices (D11) |