Testing Paternalism: Cash vs. In-kind Transfer in Rural Mexico

Welfare programs are often implemented in-kind to promote outcomes that might not be realized under cash transfers. I use a randomized controlled trial of the Mexican government's Food Assistance Program ('PAL') to test whether this form of paternalism is necessary, comparing precisely measured consumption and health outcomes under both in-kind food and cash transfers. Importantly, I fnd that households do not indulge in the consumption of vices when handed cash. Furthermore, there is little evidence that the in-kind food transfer induced more food to be consumed than did an equal-valued cash transfer. This result is partly explained by the fact that the in-kind transfer was infra-marginal in terms of total food. However, the PAL in-kind basket contained 10 individual items, and these transfers indeed altered the types of food consumed for some households. While this distorting effect of in-kind transfers is paternalism's motivation, I fnd that households receiving cash consumed equally nutritious foods. Finally, there were few differences in child nutritional intakes, and no diferences in child height, weight, sickness, or anemia prevalence. While other justifcations for in-kind transfers may certainly apply, there is minimal evidence supporting the paternalistic one in this context.