In-Kind and Cash Transfers:

 

Let us just assume a very small example to explain the important difference between in kind and cash options. Let us say there is a philanthropist who wants to donate money to a poor man. But what he does is that he gives him tokens worth hundred dollars. These are hat token, which means that he can buy nothing else other than the hats.

For a poor man, it would be a useless thing. Though they are worth a hundred dollars, it is of no use to him. He can’t get any other thing which is much more needed to him for his life. He is forced to get those hats if he has to utilize those tokens given to him. This is what the problem is in the case of in-kind donations.

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What do the economists say about this?

The economists say that there are a number of options that are given to you when you get paid in cash. This is more useful to you as you many opportunities in this case. This is very much essential in case of the people who need it the most.

They would be able to get what is essential to them, than wasting money on things which may not be of any use to them. They say that giving more opportunities is not a mistake. Hence it would be the best to give in cash whenever possible.

There was an analysis done in order to find out the better option of the two. There were three things that had to be noted from that analysis. Let us see what these three things are:

  • Firstly the preferences in case of friends and relatives are not cash. It is in-kind that they prefer to take gifts. Any friend would be upset if his friend is giving him cash as his birthday gift. It does not work with family and friends when it is the scenario of gifts.
  • Usually, the recipients’ preferences did not matter in most cases. The recipient may want cash for some reason, but the one who give it does not want it to be put to wrong use. The donor does not want the recipient to make choices, but the economists say that the recipient knows better as to what is best for himself
  • Usually, One more thing is the status issue. When there is one person who is rising, then other will have to fall in relation to his rise. For example, if you are helping someone, you expect something good coming out of it. If the result is not seen, you are reluctant to help the next time.

 

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