I am in line with Guy and just want to share two experiences I have from the field (just to confirm or contrast some of the idea below). I have been working with WFP in assessing the advantages of cash versus food distribution in situations of food shortage in Malawi in 2 consecutive years. We found the following. Nutritional outcomes are roughly the same since people really spent the cash transfer on food but insome smaller markets where food supply in the lean season was insufficient we found important inflationary effects. Behind this fact we had a not properly implemented market assessment (a kind of food market stress test for selection villages for cash distribution). So we improved this stress test for the next year and things went better. So the point here is, yes, Guy is right, there are a lot of elasticities which are sufficiently strong for avoiding inflation but in some sensitive areas you have to be very careful because if inflation pops up the harm for poor can be severe.
The second experience is from Moldova where after are financial situation close to default in 2008 FMI argued with the government to end universal transfers (too expensive) and switch over to targeted means testing. This was done with WB support and ended up leaving important groups of people out (e.g. rural households with > 3 children under 10 years), just because the means testing was not able to identify them (basically because low household incomes are overestimated due to the model specification). We had through UNICEF a 2 years discussion with the Ministry of Family to go back to a mixed system, some parts means tested and some parts universal (for certain categories like the one I mentioned). Of course the Ministry was reluctant and argued they just changed the system because IMF and WB pushed for it and now UNICEF says the opposite.
Well, finally this means for me at least in practice on the ground a mixed system is the one, which best adapts to reality, something like the best fit in econometric models.
If anybody is interested in the assessment and evaluation reports from Malawi and Moldova, just send me an e-mail.
Director ECI – Gestión para el Desarrollo Humano