In-Kind Transfers as Insurance

58 Pages Posted: 1 Mar 2021 Last revised: 23 Nov 2022

See all articles by Lucie Gadenne

Lucie Gadenne

University of Warwick

Samuel Norris

University of Chicago

Monica Singhal

University of California, Davis

Sandip Sukhtankar

University of Virginia - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2021

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.

Suggested Citation

Gadenne, Lucie and Norris, Samuel and Singhal, Monica and Sukhtankar, Sandip, In-Kind Transfers as Insurance (February 2021). NBER Working Paper No. w28507, Available at SSRN: https://ssrn.com/abstract=3795026

Lucie Gadenne (Contact Author)

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Samuel Norris

University of Chicago ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Monica Singhal

University of California, Davis

Sandip Sukhtankar

University of Virginia - Department of Economics ( email )

237 Monroe Hall
P.O. Box 400182
Charlottesville, VA 22904-418
United States

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