World Hunger, Income and Substitution Effects

Don't miss one of the best articles I've seen in a long time on hunger and development. Governments simply can't ignore economics when designing policy. A good starting principle: people respond to incentives. And not always the way governments imagine they will.

In one study conducted in two regions of China, researchers offered randomly selected poor households a large subsidy on the price of the basic staple (wheat noodles in one region, rice in the other). We usually expect that when the price of something goes down, people buy more of it. The opposite happened. Households that received subsidies for rice or wheat consumed less of those two foods and ate more shrimp and meat, even though their staples now cost less. Overall, the caloric intake of those who received the subsidy did not increase (and may even have decreased), despite the fact that their purchasing power had increased. Nor did the nutritional content improve in any other sense. The likely reason is that because the rice and wheat noodles were cheap but not particularly tasty, feeling richer might actually have made them consume less of those staples. This reasoning suggests that at least among these very poor urban households, getting more calories was not a priority: Getting better-tasting ones was.