Participant Demand

This essay analyzes the market demand by eligible participants for in-kind transfer payments of the type that reduce the free market price participants would otherwise have to pay for the product being subsidized. Examples are the Food Stamp Program, public housing programs, and such proposed programs as rent subsidy and health co-insurance programs. Two common forms for such programs are analyzed: a variable purchase form whereby those eligible may purchase any amount of the subsidized product at the subsidized price, perhaps up to some maximum; a required purchase form whereby those eligible may purchase only a given amount of the product at the subsidized price. Both cases are examined. The demand for a variable purchase in-kind transfer payment has many properties similar to that of the demand for the subsidized product from which it is derived. For instance, the price el'as;"ti,,~:j;t¥o:f;'.ciewq,nd.KQr the in-kind transfer payment is equal to the price ela.stici(y:'.~9;edem§,Il;d. for the subsidized product times the fraction to which the subsidized product price is reduced by the program. Further, the income and cross elasticities of demand for the in-kind transfer payment are identical to the income and cross elasticities of demand for the in-kind transfer payment. These elasticities are muted if a maximum purchase is established. The demand for a required purchase in-kind transfer payment is likewise derived from the demand for the subsidized product. But since those eligible choose only whether' to participate rather than the amount they wish to purchase, a demand to participate results. The market demand for the in-kind transfer payment is derived from the demand to participate in the program.