A technical study for the World Bank challenges one of the central arguments for ‘targeting’ the poorest – as well as posing a major challenge to conventional economic theory. The report is snappily titled General equilibrium effects of targeted cash transfers: nutrition impacts on non-beneficiary children. The first effect of cash benefits to selected poor people was substantially to improve the extent to which their children were able to get protein rich foods. There were marked improvements in nutrition, particularly on stunting – the effect that malnutrition has over time, in limiting children’s growth.
However, the policy also had a side-effect: the relative price of that kind of food increased. That, in turn, had a further effect: it reduced the access of other children, children in families who were not getting benefits, to protein-rich foods. The effect was clearest in poorer villages where more people were getting benefits. “We find that weight-for-age is significantly lower and the likelihood of being underweight significantly higher in program villages that have high rates of saturation. Average height-for-age is also lower and stunting rates higher …”
There are two major implications. The first is about targeting. One of the key problems with selectivity has always been that a line has to be drawn somewhere: the effect is that people a little above the line are not necessarily being treated fairly relative to those who are just below it. The way to avoid this is to make the benefits universal – which is what has been happening with basic health care and universal primary education.
The second implication is about one of the received principles of economic theory, ‘Pareto optimality’. Most economic analyses about of suppose that welfare is increased if at least one person is made better off, and no-one is worse off. I’ve argued in previous work (for example, my book Reclaiming individualism) that this cannot happen, because prices are relative to resources. This study demonstrates the effect very clearly.