Delivering Food Subsidy - The Oxford Topic of Food, Politics, and Society - page 316

impact of their expenditures will be not on grain intake but on other foods and other
commodities.
An example of the fungibility of food subsidies comes from the work of Jensen
and Miller (2011). In two regions of China, they offered subsidies on the purchases of
the basic staple (rice in Hunan and wheat flour in Gansu) to randomly selected poor
households for a period of five months. Households were given vouchers that could
be redeemed at local grain shops. Households were not permitted to resell the vouch-
ers or the goods purchased with the vouchers. They found no evidence that subsidies
increased the consumption of the subsidized staple.
The fungibility of transfers means that it is exceedingly difficult for society to make
sure that the poor utilize the aid they receive for the intended purpose of nutrition.
Every household has its own priorities, and if a particular household decides to buy a
cell phone instead of improving their food basket it may very well be that they feel a
stronger need for that phone than for more calories. In short, there is a limit to the con-
trol that a society can exercise over individual lives (Banerjee and Duflo 2007, 2011).
The implication is that both in-kind transfers and cash transfers are essentially means
of income support. When that is the case, the task of policy is to find the best mechanism
for income support. Paternalism goals are irrelevant because they cannot be achieved
any way.
Between the extremes of in-kind transfers through government procurement and
direct cash transfers are other intermediate models. A well-known model is the food
stamps system of the United States. Here, beneficiaries are given stamps or coupons of
fixed monetary value, which are then redeemed in stores.10
The stamps can be redeemed for only permitted foods. The resale of stamps and their
use as general currency is prohibited. The supposed virtue of such “restricted” cash
transfer systems is the paternalism goal of boosting food consumption. However, if such
effects are negligible or absent, then the appeal of hybrid models is not clear. Compared
with a cash transfer system, a food stamp/coupon model is more demanding. The addi-
tional requirements are systems of redemption at stores and the reimbursement of
stamps by the government. In addition, it would also be necessary to audit and enforce
the legitimate use of stamps.
Challenges to Cash Transfers: The Absence of Self-Selection?
Another justification of in-kind transfers is that it leads to self-selection of only the truly
needy. The effectiveness of self-selection unfortunately depends on the relative incon-
venience of buying in a ration shop or even having a lower quality of food available in
ration shops. The inconvenience of standing in a queue for buying something from a
ration shop could be perhaps enough to deter the rich from taking advantage of it except
for the fact that they can send their domestic help for such chores. A cash transfer with
biometric identification would make the self-selection work more effectively, thus mak-
ing even universal coverage affordable.