General - Dov Chernichovsky

Dov Chernichovsky, Uri Spiegel, Uri Ben Zion, and Mark Gradstein

Dov Chernichovsky is affiliated with the Department of Health Policy and Management and the Program for Health Policy in Economies Under Stress at the Ben-Gurion University of the Negev in Beer-Sheva, Israel. Uri Spiegel is with the Interdisciplinary Department of Social Sciences at Bar-Ilan University, Israel, and the Department of Economics at the University of Pennsylvania in Philadelphia, Pennsylvania, USA. Uri Ben Zion is affiliated with the Faculty of Industrial Engineering and Management in Technion, Haifa, Israel. Mark Gradstein is with the Department of Economics at the Ben-Gurion University of the Negev.

Abstract

The supply of food is no longer a major determinant of malnutrition in the developing world. Rather, a lack of purchasing power, ignorance about nutrition, and subjective tastes or preferences prevent some households and individuals from securing adequate diets. Some households spend more on food and other consumer items than would be needed for a minimum balanced diet. Yet they remain malnourished or have nutritionally undesirable diets. Food subsidies and income transfers have been major policy options available to governments to augment household purchasing power and change consumer preferences in order to alleviate malnutrition. Those options have traditionally addressed the problem by considering one critical nutrient and one common staple. The model discussed here provides and demonstrates a solution to the question: What is the combined optimal income-transfer and subsidy programme that would meet particular nutritional requirements with the least budget expense to the government? It is argued and shown, with the aid of an initial model, that a combination of income transfers and food subsidies that consider a range of foods, rather than a single staple, and a range of nutrients, rather than a particular nutrient, may lead to cost-beneficial policies that meet wider nutritional objectives for less cost.

Introduction

The supply of food is not a major determinant of malnutrition in the developing world. Rather, it is a lack of purchasing power of some households (and nations) that prevents them from securing adequate diets. This is one of the most important conclusions of the recent World Food Summit [1]. This view has been held for more than two decades [2].

In the classical articulation of the diet problem, Stigler [3] concluded that malnutrition is more than a problem of insufficient income to purchase enough food. Indeed, many households, especially in developing economies, probably spend more on food and other consumer items than would be needed for the minimum required diet. Yet many of them remain malnourished, in part because of ignorance about nutrition and in part because of subjective tastes or preferences that may lead to nutritionally undesirable diets.

Consequently, “ignorance” and “tastes” must be considered explicitly in food policies and programmes that in most instances attempt to modify human behaviour by changing incomes and relative prices in the short term, while relevant health education takes root [4].

Price subsidies and income transfers have been major policy options available to governments to augment household purchasing power and alleviate malnutrition [5]. Both income transfers and subsidies, largely confined to a market economy, are, however, innately problematic in that some “leakage,” i.e., support to some “wrong” people and for some “wrong” commodities, is inevitable. In spite of these shortcomings, income transfers and subsidies have major attractions. Compared with the alternatives (e.g., feeding programmes), subsidies and transfers are most effective [2]. They also rely on market rather than on administrative mechanisms. This makes them appealing in developing economies where the share of the market economy is growing but administrations may still be weak.

Through presentation of a basic model, we seek to outline the key parameters involved in the answer to the question: What is the optimal combined price subsidy and income-transfer programme that would meet particular nutritional requirements with the least budget expense? This issue of optimizing and minimizing the total amount of income transfers and subsidies has become especially significant as governments try to reduce their budgets as part of economic structural adjustment efforts.

To start answering the question, we follow earlier work by Reutlinger and Selowsky [2]. Similar to that work, we focus on “market-wide” subsidies and “target-group-oriented” income transfers. We deal also with the same parameters: income and price elasticities to capture consumer behaviour, and income distribution to capture the policy environment. The model also follows empirical research looking into the determinants of household food consumption and nutrition [6]. We depart from the work of Reutlinger and Selowsky and from common policy programmes in several ways. First, we attempt to deal with optimal combinations, from a fiscal perspective, of the alternative policies rather than viewing them as mutually exclusive options. The view that pertinent policies and programmes are mutually exclusive is also evident in the concluding remarks of the review of these policies by Pinstrup-Andersen [5]. Second, we consider a vector of nutrients rather than just one or two. Third, we deal with all foods rather than just with a particular item. A “single-nutrient, single-food” approach may be outright detrimental; it may induce consumption of, say, calories at the expense of some critical vitamins that may be ignored [7].

This paper should be viewed as part of a more general effort to develop a model that would consider optimizing income transfers and subsidies from a nutritional perspective under a variety of budgetary, production, and foreign-exchange constraints [8].

Abstract:

Traditional assessments of the impact and cost-effectiveness of various contraceptive methods, using couple-years of protection (CYPs) per dollar spent, do not accurately measure the level of protection offered by each method. An alternative measure--adjusted CYPs--that takes into account the relative risk of pregnancy among the users of each method is proposed here. Calculations show how cost recovery and reinvestment of the proceeds from family planning programs lead to the cross-subsidization of methods. In general, the more subsidized contraceptive methods are supported by the less subsidized methods. An examination of data from Colombia's Profamilia family planning program indicates that because of the differences in the relative risk of pregnancy of women of different ages, sterilization, the most effective contraceptive method, is not necessarily the most cost-effective method in terms of the number of CYPs it provides per unit cost.