Direct physical "handouts" have relatively high administrative costs. A separate government distribution pipeline has to established all the way down to a single family. Establishing and maintaining the eligibility requirements are another major headache and expense. And there are going to be "leakages" all along the way: corruption and wastage in the pipeline; fraud in eligibility; and re-selling by recipients. On the other hand, IF well administered, this method has high political sustainability (photos of needy hungry people receiving food). It can be tied to a public works program ('food for work'). It is compartmentalized in its impact. It often uses lower-grade products like low grade rice, broken rice, or other 'poor peoples' food. This method is often used for emergency situations (of acute malnutrition) where the distribution pipeline has partly broken down anyway (and prices are "perverse" to the goal) and where targeting and leakages are not a big concern.
Price controls/subsidies have some of the reverse pluses and minuses (using established pipelines, less "targeted", etc). Political sustainability lies in its broader base (think Social Security vs. Welfare). It helps target chronic undernutrition rather than acute malnutrition.
There are hybrids - in fact no one but extreme ideologues (with an ulterior motive) have tried to stick with one model all the time (think Khymer Rouge or Irish Famine). Food stamp programs give a limited group a "card" rather than the actual food. Likewise school feeding programs give out food to a "targeted" group (and require special purpose lunch facilities) but often use existing distribution networks to buy the food. On the other side of the coin, subsidy programs can be limited to the low grade products used by poor people.
Except in the most extreme cases, the overall market "distortion" is not going to be large using either method. The program is going to be *relatively* small since the govt doesn't have a LOT of money for it (relative in this case to the entire agricultural economy or, in some cases, the global market for that product). The differences in market impact will matter a lot to some special interests involved (shopkeepers, civil servant employees, etc) but that is a different question. Even if one buys into "market distortion" ideology, this example should show the student that his concerns here become obsessive (the concern for ideology overwhelms the human interest in having a food program to begin with). Not an unimportant lesson.
Paul
Soula A. writes:
It is not the dort of question I ask. But I have a zealous free market student who thinks that distrbution of food in kind would not distort the beautiful market mechanism and hence lead to more positive outcomes... It is wooly question... becsuase the impact on the budget would be the same.
Robert Scott Gassler <[EMAIL PROTECTED]> wrote:
- Properly done, either could encourage production. A subsidy would allow people more choice of what to eat.
- At 08:32 AM 6/28/05, you wrote:
- In a country where part of the population is suffering from malnutrition, which is the better policy, a subsidy on basic foods or a hand out in kind? which of these policies will affect relative prices in a way that encourages/discourages food production?
