Cost-Effective Redistribution: Implications of a Basic Needs Approach to Public Assistance

Abstract

This study develops an alternative approach to the issue of transfer form, which uses the basic needs framework to produce a set of tools for evaluating the efficiency of redistribution programs. In contrast with the Pareto redistribution approach, we find that in-kind transfers are not always preferred over cash payments when donors are concerned only with the recipient's consumption of specific commodities. Furthermore, we find that justification of a mixed transfer system on efficiency grounds does not require the existence of both general and specific commodity externalities. The choice of transfer system is shown to be dependent on the recipient's spending propensities, the specific targets of public assistance, and the administrative costs of alternative programs.