In-kind transfers, marketization costs and household specialization: Evidence from Indian farmers

I examine the effect of in-kind staple transfers on agricultural production in a setting where transactions with markets are costly for households and result in interlinked consumption and production decisions. The expansion of India’s Public Distribution system between 1993–2009 led to large variation in the quantity and value of staple grain transfers across households, districts and states. I find that an increase in PDS quantity crowds out consumption from home production and decreases staple production, while increases in the PDS subsidy per unit have zero or opposite effects. PDS quantity expansion has larger effects for households and districts that initially have less market-oriented production.