studies have tried to get indirect evidence. In Somalia, for example, a post-transfer mon-
itoring team conducted interviews with qaat (a kind of drug) traders to see if there had
been any increase in sales following the cash distribution. The team found that “there
were no reports at the household level of cash use for qaat purchase. Focus group and
key informant interviews showed that although there did appear to be a short-lived
increase in business for qaat dealers, this reflected the circulation of cash among the
business community rather than a usage among drought-affected vulnerable pastoral-
ists” (Narbeth 2004).
The overwhelming evidence has been that cash transfer programs work and recipi-
ents do spend the cash received on necessary goods. Table 12.1 (reproduced from Harvey
2005) summarizes the findings for a range of cash transfers done in different countries.
The observations do not give a great cause for alarm over the misuse of cash transfers.
Note that the underreporting bias that applies to alcohol, cigarettes, and drugs does not
apply to the surveys in Table 12.1, which look at the change in only expenditures on food
and other essentials.
Most recently, Cunha (2010) used a randomized controlled trial in rural Mexico to
compare the benefits of in-kind transfers with those of cash transfers and found that
in-kind transfers did not result in better outcomes than cash transfers though they
entailed 20% more administrative costs. Cunha concludes:
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. . . . 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
The Fungibility of Transfers
Cunha's (2010) findings point to the fact that different ways of directly transferring food
subsidy (in-kind of cash) have one thing in common—the subsidy transferred ends
up becoming fungible. This contests the assumption of paternalistic arguments that
in-kind transfers make people consume more food than they would with an equivalent
value of cash transfer.
In economic theory, the paternalistic assumption is valid only if (1) the in-kind
transfer cannot be resold and (2) the transfer (i.e., the provision of food) is larger
than what the household would voluntarily consume in its absence. If either of these
is violated, the in-kind transfer is equivalent to a cash transfer in terms of impacts
on consumption choices. The first condition is obvious: without it, the in-kind
transfer would be freely transacted and would be equivalent to a cash transfer.
To see the force of the second condition, consider Figure 12.3. It shows for India the
monthly per capital consumption of rice and wheat for different expenditure deciles of the