In-Kind Transfers as Insurance

Households in developing countries often face variation in the prices of consumption goods. We develop a model demonstrating that in-kind transfers will provide insurance benefits against price risk if the covariance between the marginal utility of income and price is positive. Using calorie shortfa...

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Bibliographic Details
Published in:The American economic review 2024-09, Vol.114 (9), p.2861-2897
Main Authors: Gadenne, Lucie, Norris, Samuel, Singhal, Monica, Sukhtankar, Sandip
Format: Article
Language:English
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Summary:Households in developing countries often face variation in the prices of consumption goods. We develop a model demonstrating that in-kind transfers will provide insurance benefits against price risk 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 this condition holds for low-income Indian households. Expansions in India’s flagship in-kind food transfer program not only increase caloric intake but also reduce caloric sensitivity to prices. Our results contribute to ongoing debates about the optimal form of social protection programs. (JEL D12, H53, I18, I38, O12, O15)
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20220822