Should the government sell you goods? Evidence from the milk market in Mexico

Diego Jimenez-Hernandez () and Enrique Seira
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Diego Jimenez-Hernandez: https://www.chicagofed.org/people/j/jimenez-hernandez-diego

No WP 2023-19, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Governments spend considerable resources providing goods directly. We show that such behavior may increase welfare when private suppliers have market power. We do this by studying the staggered rollout of hundreds of government milk “ration stores” in Mexico using a proprietary panel of household food purchases. The rollout lowered the price per liter of privately supplied milk by 2.4% and increased household consumption. To compare direct provision with budget-neutral alternatives, we develop and estimate an equilibrium model of the market that accounts for quality differences. Direct provision generates larger consumer surplus than milk vouchers and unrestricted cash transfers.

Keywords: private provision; public provision; market concentration (search for similar items in EconPapers)
JEL-codes: H42 L33 L44 L66 O15 (search for similar items in EconPapers)
Pages: 98
Date: 2022-04-19
New Economics Papers: this item is included in nep-agr, nep-com and nep-dev
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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