Public transfers and crowding-in and -out of private transfers: Experimental evidence from Kenya

Abstract

In rural areas of developing countries, private transfers are shared for altruistic reasons, to mitigate negative shocks (insurance motive) and in exchange for services. However, when public and private transfers provide similar benefits, an overlap exists, potentially crowding-out informal mechanisms. In this paper, we test whether an exogenous increase in household income, due to transfers by the Hunger Safety Net Program (HSNP) to pastoralist households in Northern Kenya, reinforces or dampens the redistributive dynamics associated with private transfers. We exploit the experimental implementation of HSNP to control for endogeneity with the randomly provided unconditional cash transfer. We show that an HSNP-induced rise in household income by 2,000 Kenyan Shillings is associated with a non-negligible decline in the total value of private transfers equivalent to 12% of the income increase. For transfers given, we show that the HSNP transfer leads to increased sharing equivalent to 11% of the income increase. Testing for non-linearities, we identify a significant reduction in the value of private transfers received at low levels of the income distribution. Concomitantly, we identify a positive relationship between income and transfers given that is most pronounced among poorer households. We further show that we possibly observe altruistic, insurance and exchange related sharing motives coexisting among Northern Kenyan pastoralists. The identified crowding-in and -out effects have implications for the design and efficacy of social programs beyond Kenya, demonstrating that traditional transfer dynamics are altered due to public programs.