APPLIED MICRO: In-kind Transfers as Insurance; Professor Sandip SUKHTANKAR (University of Virginia)

Abstract

In-kind transfers can provide insurance benefits when prices of consumption goods vary, as is common in developing countries. We develop a model demonstrating that in-kind transfers are welfare improving to beneficiaries relative to cash if the covariance between the marginal utility of income and price is positive. Using calorie shortfalls as a marginal utility proxy, we find that in-kind transfers are preferred for low-income Indian house-holds. 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.

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