Transfers in Cash or in Kind?

by Edgar O. Olsen


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A reply to Gordon Tullock's comment on my proposal (A.E.R., Sept. 1969) that housing subsidies be delivered by means of rent certificates. He argues that it will be difficult to enforce the provision of these certificates requiring each recipient to spend at least the face value of his certificate on housing. He also presents the traditional argument concerning the superiority of transfers in cash over transfers in kind. Tullock concludes that all transfers should be in cash. In my reply, I produce an example in which all Pareto optimal allocations of resources preferred by each member of society to the allocation in the absence of transfers can be attained by rent certificate plans but not by cash transfers, provided that these plans are costless to enforce. If they are costly to enforce, then there is some cost so low that rent certificates are preferable to cash transfers. 27 pp. Ref. (Author)

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