What Are Food Stamps Worth?

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.