On the Relative Efficiency of Cash Transfers and Subsidies

Thomas Ross

Economic Inquiry, 1991, vol. 29, issue 3, 485-96

Abstract: This paper considers the relative efficiency of cash grants and subsidies when society's goal is to raise the welfare of a household. When the head of the household makes all consumption decisions, a principal-agent problem is created: the head acts as the agent of the government in allocating the transferred resources. Subsidies to commodities with particular characteristics may be a more efficient way to guarantee that benefits are shared within the household. Though related to the old notion of paternalism, this theory leads to more specific predictions regarding the kinds of commodities that can be efficiently subsidized. Copyright 1991 by Oxford University Press.

Date: 1991
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Working Paper: ON THE RELATIVE EFFICIENCY OF CASH TRANSFERS AND SUBSIDIES (1988)
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