Targeted benefits Flashcards
were the outcomes from the winter fuel payment consistent with the standard economic model
no, the outcome is not consistent with the standard economic model
what are distorted consumers *
where because they have a preference for things not part of the targeted benefit, a targeted benefit increases utility less than a cash increase
in restaurant experiment what was the outcomes of label treatment
label treatment increases spending on labelled goods (drink) compared to cash treatment, overall spending is higher than under cash treatment
what are the three features of the behavioural perspective for targeted benefits *
signalling,
salience,
mental accounting,
(other cards to explain)
how do they incentivise the students to actually work hard in the lab experiment for targeted benefits
actual payment for participation depends on the payoff they get
whats an example of targeted benefits to do with food stamps in the uk
healthy start vouchers that were introduced in 2006 and were vouchers for fruit, veg and milk for low income families and pregnant women
explain signalling (behavioural perspective, targeted benefits) *
consumers don’t have full information/known preferences,
labels may have informational content,
change preferences
what are the three assumptions for homo economicus for the standard model (targeted benefits)
homo economicus -
has full information,
has known preferences,
chooses the best option available
what are the implications for consumer welfare for targeted benefits
targeted benefits are suboptimal assuming consumers know what is best for them
what does fungible mean
replaceable by another identical item (mutually interchangeable)
what are the four reasons why we are not rational the whole time
we are myopic (short sighted),
we are easily confused,
we don’t know what we want,
we have emotions
what are targeted benefits
vouchers to be spent on particular goods/services
for which type of consumer does an increase in targeted benefits bring about the most utility change out of infra-marginal or distorted
infra-marginal because the increase in utility is equal to the size of the targeted benefit increase
whats the main reason for wanting to use targeted benefits instead of cash
targeted benefits seen as a tool to affect the way recipients spend money (compared to cash)
what are conclusions for whitmore study *
evidence lines up with standard model,
infra-marginal stamp and cash recipients spend the same,
food stamps lead to higher food spending for distorted stamp recipients,
more juice and soda
explain mental accounting (behavioural perspective, targeted benefits) *
simplified budgeting rules,
money is no longer fungible
how do you find compensating variation on a graph
extend the horizontal line until the amount of food is equal to the indifference curve of cash is,
at start of notes
how come an increase in targeted benefits still increases spending on other items
spend food stamps on food,
free up other income to spend on non-food
what is the restaurant experiment *
wine restaurant in Germany,
additional grant 8 euro voucher presented to guests on arrival to be spent on that day,
day to day variation in treatments (random allocation),
cash treatment voucher used to reduce overall bill,
label treatment for drinks,
additional baseline no voucher
what is equivalent variation *
how much less in cash income would someone need to make them as well off as with food stamps
what were the outcomes of the winter fuel payment
increase in spending on heating associated with WFP was more than the increase in spending on heating associated with cash income,
41% of WFP on heating,
would spend 3% if payment treated as cash
what are the takeaways from abeler and marklein about targeted benefits
this paper provides evidence of labelling effects,
violates fungibility assumption (money is money),
labelling effects will affect the way that targeted/labelled benefits affect behaviour
what does the implications for consumer spending of targeted benefits depend on
depends on the balance of distorted/infra-marginal consumers
what is a field experiment (RCT)
natural setting and relevant population
what is compensating variation *
how much extra in food stamps would someone have to be given to make them as well off as with cash income
what was introduced in 1969
food stamps/SNAP (supplemental nutritional assistance programme)
what does a targeted benefit such as a food stamp do to the diagram for consumer theory
kinked curve,
cannot get more non food when given the targeted benefit because you can only spend it on food but does increase the amount of food you can get
explain the lab experiment for targeted benefits *
game involves allocation of budget between two goods,
initially students earn money through a mundane task,
students allocate initial income and then initial income when given a grant as well
what is the endogeneity selection problem for targeted benefits
treatment is determined by factors that affect the outcome of interest
does this statement relate to distorted or infra-marginal,
‘same prices, same outcomes’
infra-marginal
nudge economics d
concept which proposes positive reinforcement and indirect suggestions to try to achieve non-forced compliance to influence the motives and decisions of groups and individuals
what is the exogeneity selection problem for targeted benefits
treatment is determined by factors that do not affect the outcome of interest
what would make using vouchers to change behaviour more effective
if there are labelling effects
what are the strengths of the lab experiment over the restaurant experiment for targeted benefits
random allocation across individuals (not by day),
control over background factors,
control over experiment design
can you compare eligible recipients and eligible non-recipients
no, self-selected group, selection on ‘unobservable’ factors likely to be correlated with spending outcomes
what are some issues with field experiments (RCT)
arguably limited scale (compared to genuine policy change),
issue if people know they are in an experiment (behave differently, will they expect the experiment to last)
what are some issues with laboratory experiments
may be an unrepresentative population (students),
arguably artificial setting
what affects the balance of distorted/infra-marginal consumers
size of benefits,
degree of targeting,
consumer preferences
look at what the responses on the graphs are to behavioural repsonses
look at notes and it is on lecture slides
whats a key thing to know when thinking about targeted benefits
what do people spend cash benefits on
for targeted benefits can you just compare recipients with non-recipients
no because they are different based on income and household composition
features of the winter fuel payment *
£200 annual tax free payment to people aged 60+ to ‘pay for their heating in the winter’,
however it is income so could be spent on anything,
label suggests specific purpose
how does Whitmore deal with distorted and infra-marginal consumers
random allocation between stamp and check,
then split each group into distorted and infra-marginal and compare like for like (compare distorted stamp with distorted check etc)
what are the two ways the government can transfer resources to low-income households
give income (cash benefits), give goods and services or vouchers to be spent on particular goods/services
for abeler and marklein are the consumers distorted or infra-marginal
the consumers are infra-marginal (non-distortionary)
what gives you a bias for the food stamp studies
the household’s preference for food (high preference or low preference)
what is a laboratory experimentd
controlled environment to study behaviour
what are infra-marginal consumers *
consumers with an indifference curve such that the increase in utility of targeted benefits is exactly the same as a cash increase
how did they make a control and treatment group for targeted benefits lab experiment
control group - additional income given as a cash grant (30 points for either good),
treatment - targeted grant (30 points for targeted good),
(both groups can achieve the same optimal allocation = 13 units of the targeted good)
what did Whitmore find the cash value of food stamps to be
80%
what does the basic graph for consumer theory look like
non food y
food x
straight line showing budget constraint
what is trump/republicans doing to do with food stamps (SNAP)
Trump/Republicans proposing cuts to SNAPs
what does SNAP stand for
supplemental nutritional assistance programme
whats the only way to affect consumer decisions in the standard model (targeted benefits)
you change income or prices
talk about distorted consumers and targeted benefits *
distorted consumers need a higher level of targeted benefits to achieve the same utility as cash benefits
what is an example of targeted benefits in the uk *
winter fuel payment which was a £200 payment to everyone 60+ to help pay for their heating in the winter however it is income so could be spent on anything
what two theories are used to explore to what extent do targeted benefits reduce spending on ‘bads’
consumer theory,
behavioural economics
what are the implications for social welfare of targeted benefits
recipient welfare cost,
higher admin cost associated with targeted benefits,
might have externalities (costs/benefits for society)
what are the two papers for targeted benefits
whitmore (cashing out food stamps),
abeler and marklein (experiments in field and in lab)
what were some results of whitmore food stamp study *
cash recipients spend more on non-food items,
what they spent money on is inconclusive but isn’t alcohol (no information on tobacco),
lower total spending (non-recorded items, reducing debts/pay off bills)
what does SNAP (supplemental nutritional assistance programme) do
biggest single programme for working low-income households providing food stamps and temporary assistance for needy families
what does the effect of a cash benefit have using consumption theory
shift outwards of the budget constraint
explain salience (behavioural perspective, targeted benefits) *
consumers are not paying full attention when they make decisions,
labels draw attention to particular goods and services,
unlike signalling, preferences don’t change
explain abeler and marklein paper
consumers allocate a budget between two goods,
budget consists of a cash endowment and an additional grant which is either a cash treatment or label treatment
for restaurant experiment are consumers infra-marginal or distorted
consumers are infra-marginal, so differences between cash and label treatment are evidence of behavioural effect
how does a randomised controlled trial work
get a group of patients,
random assingnment into treatment and control groups,
follow up with either group and compare results of the two groups
features of Whitmore *
RCT ran in San Diego and Alabama in early 1990s,
cash out experiment half eligible households received stamps as usual, half received cash,
stamps=received food stamps
check=received cash
who came up with nudge economics
richard thaler
what is the infra-marginal distorted split for Whitmore
both approaches of splitting up the sample give around 20% distorted and 80% infra-marginal
draw graph of preference for food or non food
lecture notes page 29 that you printed out in the library
what does the effect of targeted benefits on consumer spending depend on
balance of distorted/infra-marginal consumers, determined by:
size of benefits,
degree of targeting,
consumer preferences
what does carte blache mean
complete freedom to act as one wishes
talk about distorted consumers and cash out
distorted consumers need a higher level of targeted benefits to achieve the same utility as cash benefits,
government could give smaller cash benefits without reducing their utility, whitmore cash value of fs=80%
to be social-welfare improving what does the change in spending induced by targeted benefits have to have
net benefits:
externalities- costs/benefits for other people in society eg reduced healthcare costs,
internalities- costs/benefits for benefit recipients (that they don’t take account of)
