aikyam school

In-Kind Housing Benefit Budget Constraint Kink

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.

Picture this

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.

What the evidence says

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.

Who
N = 42,358 working-age, able-bodied adults; Chicago, Illinois.
How
Theoretical budget constraint analysis comparing market Fair Market Rent ($12,000/year) and mandatory out-of-pocket contribution ($3,735/year) against equivalent variation.

What to do

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.

From the source

"Figure 1 from Currie and Gahvari (2008) shows that if a government program that provides people with an in-kind benefit leads the good to be overprovided, households are at the kink in their budget constraint created by the in-kind benefit..."

The Effects of Housing Assistance on Labor Supply: Evidence from a Voucher Lottery

Tagged

  • in kind transfers
  • budget constraint
  • equivalent variation

Nearby findings