Collaborative Research: Policy Analysis by Revealed Preference: With an Application to Food Security

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Governments around the world spend large shares of their budgets on the public provision of private goods. Understanding the tradeoffs between redistribution in cash and in kind is thus central to government policy. For example, redistributing in-kind may potentially reduce choice and thus lower recipients' welfare, but may increase taxpayers' welfare if they have paternalistic preferences and care more about preventing hunger than about the other aspirations of the poor. The PIs propose a rigorous experimental study to estimate (i) beneficiary preferences over equally-valued cash and in-kind transfers, (ii) the relative impact on nutrition of cash and in-kind transfers, and (iii) beneficiary valuation of in-kind benefits. This design allows one to measure both beneficiary preferences (using the take up rate) as well as the causal impact of cash vs. kind benefits on nutrition (using the random assignment of the offer to estimate both intent-to-treat and treatment-on-treated effects on nutrition). Further, the PIs offer additional randomly selected households the option to exchange their in-kind benefits for an experimentally varied cash transfer, which allows to estimate the demand for the status quo at various prices and to quantify the consumer surplus (or loss) beneficiaries obtain from in-kind benefits relative to cash transfers. Methodologically, the PIs integrate in one design the two paradigms that have dominated modern policy evaluation, one based on impacts, the other based on revealed preferences. In addition, by measuring take-up at randomly varied prices, the PIs are among the first to estimate individual-level beneficiary valuations of publicly-provided private goods using experimental data. The revealed preference approach is unique in enabling one to understand and accommodate heterogeneity of beneficiary preferences over cash and in-kind benefits, thereby reducing the political and ethical risks of policy experimentation in a critical area such as food security for the poor