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Testing Paternalism: Cash vs. In-kind Transfer in Rural Mexico

Mar 2010
Working Paper
09-021
By  Jesse Cunha
Welfare programs are often implemented in-kind to promote outcomes that might not be realized under cash transfers. I use a randomized controlled trial of the Mexican government's Food Assistance Program ('PAL') 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, I find that 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 PAL 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, I find that households receiving cash consumed equally nutritious foods. Finally, there were few di¤erences in child nutritional intakes, and no di¤erences 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.