Takavarasha, 2013). The first channel is physical. For example, untreated individuals can be positively affected by a treatment slowing the spread of a contagious epidemic (Miguel and Kremer, 2004). The second channel is informational or behavioral: programs can have an impact on the untreated through imitation and communication with treated peers (Kim et al, 1999; Bobonis and Finan, 2009). The third channel relates to market-wide effects. In our case, social transfer programs can generate externalities in village economies because the program’s money immediately passes from recipient to nonbeneficiary households as the cash is used to purchase goods and services or to transfer money to peers. Resulting general equilibrium effects have been highlighted in research on agricultural growth multipliers (Block, 1999; Haggblade et al, 1991; Filipski et al, 2015) as well as in work on structural models of village economies (Kaboski and Townsend, 2011; Attanasio et al, 2012).

As local demand increases, local traders’ revenue increases. Under general assumptions, prices of normal goods in the local market should then increase in the short run if the degree of openness and competition in the local economy is low (Cunha et al, 2011; D’Aoust et al, 2013). In the long run, prices should return to their equilibrium as local traders adapt to the increased demand and as excess money escapes the local economy for purchasing goods that are not produced locally (Cunha et al, 2011; D’Aoust et al, 2013). The short-run increase in price should further increase the profit of local traders, while being detrimental for buyers (Filipski et al, 2015). The price increase may be attenuated if cash allowances are partly invested in assets that increase productive capacity in villages. For goods that are imported locally and characterized by oligopolistic competition, prices could even decrease following the positive demand shock if local traders face fixed costs in a Bertrand competition model or if the demand shock causes more stores to sell the good, thereby increasing competition in a Cournot-Nash framework (Cunha et al, 2011; D’Aoust et al, 2013).

Few empirical studies have examined the price effects and the externalities of cash transfers on nonbeneficiaries. For example, using the data from Progresa in Mexico, Angelucci and De Giorgi (2009) and Barrientos and Sabatés-wheeler (2009) find that noneligible households in treatment areas show significantly higher levels of food consumption and asset holdings following the introduction of the conditional cash transfer program, compared to noneligible households in control areas. Studying the impact of the PAL program in Mexico, Cunha et al (2011) find that cash transfers in remote villages led to higher food prices, which in turn increased agricultural profits and household wealth. They also show theoretically and empirically that prices are lower following in-kind transfers, which affect supply whereas cash transfers affect demand.

This review of the literature shows that the impacts and externalities of the Burundian DDR are expected to depend on how ex-combatants used their allowances. The use of allowances ultimately depends on socio-economic constraints faced by beneficiaries and socio-economic 7