Repeated Interaction and the Public Provision of Private Goods

The literature suggests that governments can use in‐kind transfers to design efficient and targeted redistribution schemes if individual incomes are not directly observable. We investigate the extent to which the self‐selection property of in‐kind transfers carries through if redistributive transfers are made repeatedly. In a two‐period setting, the government may gain information about the individuals' incomes in the first period and exploit this information for making targeted transfers in the second‐period. This, however, also triggers changes in the individuals' behavior. If the government can commit to its future policy, the least cost policy may involve randomization between cash and in‐kind transfers. Without commitment, the dynamic setting works against the government's interest. It may no longer be able to use in‐kind transfers to generate information about the individuals' types. JEL classification: H42; H2