What Are Food Stamps Worth?

Author
Abstract

The carte-blanche principle implies that food stamp recipients would be better off if they were
given cash instead of an equivalent amount in food stamps. I estimate the cash-equivalent value
of food stamps and the lowest price a recipient would accept to sell her “extra” food stamps on
the underground market. I estimate that between 20 and 30 percent of food stamp recipients
spend less on food than their food stamp benefit amount if they receive cash instead of stamps,
and therefore would be better off with cash. Using a theoretical model I present and data from
experiments conducted in two states, I estimate that on average “distorted” food stamp recipients
value their total benefits at 80 percent of their face value. Aggregating over recipients, the
annual deadweight loss associated with the food stamp program is one-half billion dollars. Food
diary data indicate that providing cash instead of stamps causes some distorted recipients to
decrease their food spending – especially on soda and juice – but has no negative consequence
for nutrition. As predicted by theory, inframarginal food stamp recipients do not alter their
behavior if they are given cash instead of food stamps. Although paying in-kind benefits results
in some deadweight loss, it is thought that an underground market for the excess stamps will be
created to alleviate some of the loss. I present new survey evidence indicating that stamps trade
for only about 65 percent of their face value on the underground market.

Year of Publication
2002
Number
468
Date Published
07/2002
Publication Language
eng
Citation Key
8205
URL
Working Papers