In Simple Words
Unlike receiving cash that can be spent on anything, a voucher must be used on an apartment that meets specific government standards and cost limits. This restricts choices, forcing households onto a specific point on their budget line where housing may be over-provided compared to their preferred cash spending.
Research question
In-kind housing subsidies combine maximum rent caps and minimum physical unit quality rules, creating non-linear budget constraints that constrain recipient consumption differently than cash transfers.
Participants
N = 42,358 working-age, able-bodied adults; Chicago, Illinois.
Study Design
Theoretical budget constraint analysis comparing market Fair Market Rent ($12,000/year) and mandatory out-of-pocket contribution ($3,735/year) against equivalent variation.
Results
The average maximum subsidy of $8,265/year carries an estimated equivalent variation of $6,860/year (benefit-to-subsidy ratio of 0.83), reflecting a 17 percent subjective value discount due to in-kind consumption constraints.
Takeaway
Incorporate equivalent variation discounts (0.83 benefit-to-subsidy ratio) when evaluating the consumer surplus generated by in-kind housing vouchers relative to cash transfers.