Give cash or food?
Both types of transfers increase the demand for normal goods, but only in-kind transfers also increase supply. Hence, in-kind transfers should lead to lower prices than cash transfers, which helps consumers at the expense of local producers.
We test and confirm this prediction using a program in Mexico that randomly assigned villages to receive boxes of food (trucked into the village), equivalently-valued cash transfers, or no transfers. The pecuniary benefit to consumers of in-kind transfers, relative to cash transfers, equals 11% of the direct transfer.
A new paper. Not surprising, but never quite proven. Or quantified.
3 Responses
As Afrophile says, surely cash raises prices (compared to food delivery) which encourages both local production and the supply chain. And would discourage hoarding. And can be delivered a lot faster. Did the survey look at those aspects?
I thought the idea of aid in cash is that people in poor countries buy corn or wheat that was grown by subsidized American or European farmers.
But one of the main arguments of cash transfer advocates is the long-term effects on the supply side, right? Lower prices for producers leads to lower supply leads to more food shortages.