This paper examines the role of cash transfers as a screening device when combined with in-kind transfers. It shows that linking in-kind to cash transfers makes first-best redistribution possible despite the government's inability to tell rich and poor individuals apart. Moreover, the maximal attainable welfare for the poor can be pushed beyond its first-best level by distorting downward the quality of the indivisible good the poor receive relative to the cash value of their net transfers. Using in-kind transfers alone, as in Besley and Coate (1991), leads to a third-best solution. (JEL D31, H23, H41)
Gahvari, Firouz and Enlinson Mattos.
2007."Conditional Cash Transfers, Public Provision of Private Goods, and Income Redistribution."American Economic Review,
97(1): 491-502.DOI: 10.1257/aer.97.1.491