Jade Siu, Olivier Sterck and Cory Rodgers have a new article in the Journal of Development Economics examining the impact of cash transfer restrictions. Every year, billions of dollars of cash-based assistance is distributed with restrictions on the types of goods that can be purchased.
In ‘The freedom to choose: Theory and quasi-experimental evidence on cash transfer restrictions’, Siu, Sterck and Rodgers fill an important gap in the literature “by providing robust empirical evidence on the net effect of cash transfer restrictions in a context where restrictions matter because cash transfers are extra-marginal and the resale of unrestricted goods is costly.”
The research exploits a natural experiment in the Kalobeyei refugee settlement in Kenya, where some refugees receive monthly cash transfers restricted to food while others receive unrestricted transfers.
In line with theory, the authors find that restricted transfers increase participation in a shadow resale market and negatively affect non-food expenditure, temptation-goods spending, and subjective well-being. Consistent with theory, restrictions have no significant effect on food consumption.
The authors assert that these results demonstrate that policy-makers should avoid restrictions to maximise positive impacts on transfer beneficiaries, especially when extreme poverty implies that transfers are extra-marginal.