In-Kind Transfers as Insurance

Abstract

Households in developing countries often face variation in the prices of consumption goods. We develop a model demonstrating that in-kind transfers will provide insurance benefits against price risk if the covariance between the marginal utility of income and price is positive. Using calorie shortfalls as a proxy for marginal utility, we find that this condition holds for low-income Indian households. Expansions in India’s flagship in-kind food transfer program not only increase caloric intake but also reduce caloric sensitivity to prices. Our results contribute to ongoing debates about the optimal form of social protection programs. (JEL D12, H53, I18, I38, O12, O15)