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Optimal Consumer Subsidies and Income Transfers for Minimum Nutritional Requirements: A Basic Model

The supply of food is no longer a major determinant of malnutrition in the developing world. Rather, a lack of purchasing power, ignorance about nutrition, and subjective tastes or preferences prevent some households and individuals from securing adequate diets. Some households spend more on food and other consumer items than would be needed for a minimum balanced diet. Yet they remain malnourished or have nutritionally undesirable diets. Food subsidies and income transfers have been major policy options available to governments to augment household purchasing power and change consumer preferences in order to alleviate malnutrition. Those options have traditionally addressed the problem by considering one critical nutrient and one common staple. The model discussed here provides and demonstrates a solution to the question: What is the combined optimal income-transfer and subsidy programme that would meet particular nutritional requirements with the least budget expense to the government? It is argued and shown, with the aid of an initial model, that a combination of income transfers and food subsidies that consider a range of foods, rather than a single staple, and a range of nutrients, rather than a particular nutrient, may lead to cost-beneficial policies that meet wider nutritional objectives for less cost.