The freedom to choose: Theory and quasi-experimental evidence on cash transfer restrictions

Jade Siu, Olivier Sterck, and Cory Rodgers

Journal of Development Economics, Volume 161 (2023), Article Number 103027


This paper studies the effect of cash transfer restrictions on the welfare of recipients in the Kalobeyei refugee settlement in Kenya, a context in which restrictions matter because cash transfers are extra-marginal (they are greater than the amount a household would have otherwise spent on food), and the resale of unrestricted goods (i.e., food items) is costly. The authors assess whether restrictions affect consumer choices, whether recipients comply or circumvent restrictions, and whether restrictions increase or decrease the welfare of recipients.

The Kalobeyei settlement was established in 2016 with the objective of promoting a model for refugee assistance that promotes self-reliance among the refugee and host communities. In 2019, when the research was undertaken, the settlement accommodated around 36,000 refugees. Extreme poverty and food insecurity are widespread in the settlement (73 percent of households in the study were severely food insecure) and dietary diversity is very low.

Since 2016, the World Food Programme (WFP) has been providing a monthly cash transfer to each refugee in the settlement of US$14, restricted to the purchase of food items (excluding alcohol, tobacco, and non-food items). In June 2019, the restriction was lifted for 1,050 households living in one area of the settlement. The authors exploit this quasi-random policy change to assess the impact of cash transfer restrictions.

The analysis is based on a representative survey conducted in November 2019 of a randomly selected sample of 896 South Sudanese refugee households, five months after the first unrestricted cash transfer was made. 525 households received unrestricted cash transfers, and 371 households received restricted cash transfers. The survey collected information on food and non-food expenditure, food consumption, asset ownership, income, remittances, savings and loans, subjective well-being, women’s participation in household decision making, and preferences between the two cash transfer modalities.

Main findings:

  • A sizeable resale market exists in Kalobeyei. 70 percent of households receiving restricted cash transfers resold food and 78 percent exchanged food for other goods. Buyers are either the minority of refugees who have an income or the host population.
  • Reselling food in the resale market entails a substantial loss for recipient households. Median prices in the resale market are 18 to 38 percent lower than retail market prices, implying that households selling goods incur large losses.
  • Households receiving unrestricted cash transfers are less likely to resell food items in the resale market. Households receiving unrestricted cash transfers are 10 percentage points less likely to have resold food items in the month preceding the survey compared to households receiving unrestricted transfers.
  • Households receiving restricted cash transfers do not have better nutrition outcomes, but they do have lower non-food expenditure and lower expenditure on temptation goods (alcohol, tobacco, and restaurants). There is also suggestive evidence that households receiving restricted transfers have lower levels of asset ownership and asset purchases.
  • Households receiving unrestricted cash transfers report moderately higher levels of subjective wellbeing compared to those receiving restricted cash transfers.
  • Household indebtedness attenuates the positive effects of lifting restrictions on the use of cash transfers. Almost 90 percent of refugee households in the sample are indebted, usually because they’ve had to buy food on credit. Effects of lifting the cash transfer restrictions are larger for households that are not indebted to their food retailer enabling them to access cash more easily.

The authors conclude that the switch from restricted to unrestricted cash transfers was welfare enhancing for refugee households. The authors point out that addressing indebtedness is essential to realizing the full potential of unrestricted cash transfers.