BS2250 Intermediate Microeconomics
Impact of Vouchers
Increase in diet-related diseases in United Kingdom and other developed countries
across the world has led to a growth of interest by policy makers to help improve the
dietary choices. As part of the government welfare programs, the government target low
income earners and gives them a benefit that enables them to purchase healthy foods.
The benefits can either be a voucher or a cash transfer. As a measure to control obesity
the government of UK through the public welfare program introduced and implemented a
large-scale voucher scheme among the low-income earners.1The consumption rate
registered a positive increase by 15% consumption increased by 15% which was equal
to 2/3 of a portion per day in each targeted household. A research by Griffith et al (2015)
on the effectiveness of the UK Health start scheme found that vouchers spending was in
line with standard economic analysis predictions.2 That is, there was a huge impact on
spending among households that spent less that spent less than the value of the UK
health start scheme voucher. On the other hand, the infra-marginal households who were
already spending more than the value of the voucher indicated a similar effect to an
equivalent cash benefit. This paper aims to apply the standard economic theory to
analyze the findings by Griffith et al 2015 on effect of vouchers and create an insight to
the government on developing a policy whose behavioral response will increase
consumption in both the infra-marginals and the distorted households.
Rational model focuses on the effects on spending by comparing the impact of a voucher
on households with high and low preference for healthy goods.3 It is assumed that there
are other compound goods equal to monthly income T if all is spent on it. The consumer
has no other income.4 It is also assumed that the price of all commodities are fixed and
the voucher can only be spent within a month as shown in figure 1.0. Line A-B is the
initial budget constraint.The consumer can decide to spend on heathy goods and others
commodities within the budget T/Phf .The introduction of the voucher increases the
1
Lunn (2014).
2
Griffith et al., (2015).
3
Besanko and Braeutigam (2014).
4
Bradford & Shaviro (1999).
, income shifting the budget constraint A-C-D outwards adding the consumer income to
buy (T+V)/PHf . An equivalent cash benefit of an equal amount would allow the consumer
to spend without a constraint on budget line E-D. The distorted household have higher
budget to buy T+v of all other goods and the marginal households may buy (T+V)/PHf.
1.0 impact of voucher on a budget constraint
The consumer choice theory suggest that health vouchers have a big impact on distorted
households and a zero impact on the infra- marginal households as shown in the figure
1.1. Infra-marginals households are the consumer whose preference and utility for health
goods is high in the absence of a voucher.5 Distorted households are the consumers who
spend less value of the voucher.6 They are said to have a high marginal rate for
substitution (MRS). In the Absence of Health vouchers the Inframarginal households
consume at optimal bundle F more than the value of the respective voucher
,Q1>V/PHF,on budget constraint A-B.With the introduction of a voucher ,the budget
constraint A-C-D the infra-marginals consume with a more steep curve increasing utility
U2 at optimal bundle G , Q2>V/PHF. If the voucher is replaced with the cash Benefit, the
5
Goolsbee et al., (2016)
6
Griffith et al., (2015).
Impact of Vouchers
Increase in diet-related diseases in United Kingdom and other developed countries
across the world has led to a growth of interest by policy makers to help improve the
dietary choices. As part of the government welfare programs, the government target low
income earners and gives them a benefit that enables them to purchase healthy foods.
The benefits can either be a voucher or a cash transfer. As a measure to control obesity
the government of UK through the public welfare program introduced and implemented a
large-scale voucher scheme among the low-income earners.1The consumption rate
registered a positive increase by 15% consumption increased by 15% which was equal
to 2/3 of a portion per day in each targeted household. A research by Griffith et al (2015)
on the effectiveness of the UK Health start scheme found that vouchers spending was in
line with standard economic analysis predictions.2 That is, there was a huge impact on
spending among households that spent less that spent less than the value of the UK
health start scheme voucher. On the other hand, the infra-marginal households who were
already spending more than the value of the voucher indicated a similar effect to an
equivalent cash benefit. This paper aims to apply the standard economic theory to
analyze the findings by Griffith et al 2015 on effect of vouchers and create an insight to
the government on developing a policy whose behavioral response will increase
consumption in both the infra-marginals and the distorted households.
Rational model focuses on the effects on spending by comparing the impact of a voucher
on households with high and low preference for healthy goods.3 It is assumed that there
are other compound goods equal to monthly income T if all is spent on it. The consumer
has no other income.4 It is also assumed that the price of all commodities are fixed and
the voucher can only be spent within a month as shown in figure 1.0. Line A-B is the
initial budget constraint.The consumer can decide to spend on heathy goods and others
commodities within the budget T/Phf .The introduction of the voucher increases the
1
Lunn (2014).
2
Griffith et al., (2015).
3
Besanko and Braeutigam (2014).
4
Bradford & Shaviro (1999).
, income shifting the budget constraint A-C-D outwards adding the consumer income to
buy (T+V)/PHf . An equivalent cash benefit of an equal amount would allow the consumer
to spend without a constraint on budget line E-D. The distorted household have higher
budget to buy T+v of all other goods and the marginal households may buy (T+V)/PHf.
1.0 impact of voucher on a budget constraint
The consumer choice theory suggest that health vouchers have a big impact on distorted
households and a zero impact on the infra- marginal households as shown in the figure
1.1. Infra-marginals households are the consumer whose preference and utility for health
goods is high in the absence of a voucher.5 Distorted households are the consumers who
spend less value of the voucher.6 They are said to have a high marginal rate for
substitution (MRS). In the Absence of Health vouchers the Inframarginal households
consume at optimal bundle F more than the value of the respective voucher
,Q1>V/PHF,on budget constraint A-B.With the introduction of a voucher ,the budget
constraint A-C-D the infra-marginals consume with a more steep curve increasing utility
U2 at optimal bundle G , Q2>V/PHF. If the voucher is replaced with the cash Benefit, the
5
Goolsbee et al., (2016)
6
Griffith et al., (2015).
