In the United States, one of the largest welfare programs is the Supplemental Nutrition Assistance Program (SNAP) representing the second largest in-kind transfer program for individuals in the US. From the abstract of the study we are told “[a] 1% increase in benefits per population raises grocery prices by a persistent 0.08%. A calibrated partial-equilibrium model implies a marginal benefit dollar raises a recipient’s consumer surplus from groceries by $0.7, producer surplus by $0.5, and lowers each non-SNAP consumer’s surplus by $0.05.” In other words, increasing the size of the in-kind transfer leads to higher prices. This higher price results in a larger surplus for grocery stores and a lower consumer surplus for individuals not participating in SNAP. Those individuals who participate in SNAP can increase their overall consumer surplus as they have access to more goods, despite the higher price. This result is estimated using the nearly 100% redemption of the SNAP benefits (i.e. assuming the benefit goes directly to those in the SNAP program). The welfare programs the Canadian government runs tend to provide a cash transfer as opposed to an in-kind transfer system2 . Any direct cash transfer program would not limit the types of goods that can be purchased/accessed whereas the SNAP program can only be used to access certain types of food approved by the government. Not discussed in the article is the challenge of a gray market where individuals will trade the in-kind goods provided by SNAP for money implying the SNAP participants are not actually receiving all of the in-kind goods. • Question: If the US moved from using SNAP to giving the same $ value benefits to those with lower income (i.e. adopted a program more like the Canadian programs) explain what you would expect would happen in the market for groceries and the welfare measures (i.e. consumer and producer surplus).
In the United States, one of the largest welfare programs is the Supplemental Nutrition
Assistance Program (SNAP) representing the second largest in-kind transfer program
for individuals in the US. From the abstract of the study we are told “[a] 1% increase
in benefits per population raises grocery prices by a persistent 0.08%. A calibrated
partial-equilibrium model implies a marginal benefit dollar raises a recipient’s
surplus
consumer’s surplus by $0.05.” In other words, increasing the size of the in-kind transfer
leads to higher prices. This higher price results in a larger surplus for grocery stores and
a lower consumer surplus for individuals not participating in SNAP. Those individuals
who participate in SNAP can increase their overall consumer surplus as they have
access to more goods, despite the higher price. This result is estimated using the
nearly 100% redemption of the SNAP benefits (i.e. assuming the benefit goes directly
to those in the SNAP program).
The welfare programs the Canadian government runs tend to provide a cash transfer
as opposed to an in-kind transfer system2
. Any direct cash transfer program would not
limit the types of goods that can be purchased/accessed whereas the SNAP program
can only be used to access certain types of food approved by the government. Not
discussed in the article is the challenge of a gray market where individuals will trade
the in-kind goods provided by SNAP for money implying the SNAP participants are
not actually receiving all of the in-kind goods.
• Question: If the US moved from using SNAP to giving the same $ value benefits
to those with lower income (i.e. adopted a program more like the Canadian programs) explain what you would expect would happen in the market for groceries
and the welfare measures (i.e.
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