Testing Paternalism: Cash vs. In-kind Transfers

Welfare programs are often implemented in-kind to promote outcomes that might not be realized under cash transfers. This paper uses a randomized controlled trial of a governmental food assistance program to test whether this form of paternalism is necessary, comparing precisely measured consumption and health outcomes under both in-kind food and cash transfers. Importantly, households do not indulge in the consumption of vices when handed cash. Furthermore, there is little evidence that the in-kind food transfer induced more food to be consumed than did an equal-valued cash transfer. This result is partly explained by the fact that the in-kind transfer was infra-marginal in terms of total food. However, the in-kind basket contained 10 individual items, and these transfers indeed altered the types of food consumed for some households. While this distorting effect of in-kind transfers must be a motivation for paternalism, households receiving cash consumed different, but equally nutritious foods. Finally, there were few differences in child nutritional intakes, and no differences in child height, weight, sickness, or anemia prevalence. While other justifications for in-kind transfers may certainly apply, there is minimal evidence supporting the paternalistic one in this context.