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Should the government sell you goods? Evidence from the milk market in Mexico

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Abstract

Governments spend considerable resources providing goods directly. We show that such behavior may increase welfare when private suppliers have market power. We do this by studying the staggered rollout of hundreds of government milk “ration stores” in Mexico using a proprietary panel of household food purchases. The rollout lowered the price per liter of privately supplied milk by 2.4% and increased household consumption. To compare direct provision with budget-neutral alternatives, we develop and estimate an equilibrium model of the market that accounts for quality differences. Direct provision generates larger consumer surplus than milk vouchers and unrestricted cash transfers.

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  • Diego Jimenez-Hernandez & Enrique Seira, 2022. "Should the government sell you goods? Evidence from the milk market in Mexico," Working Paper Series WP 2023-19, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:96204
    DOI: 10.21033/wp-2023-19
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    More about this item

    Keywords

    private provision; public provision; market concentration;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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