on beneficiaries from its indirect impact on civilians. In this section, we rely on the theoretical and empirical literature on cash and in-kind transfers to predict the direction and the size of these effects.

Standard models of investment predict that agents produce at their efficient scale if financial markets function well (Blattman et al, 2014; Fafchamps et al, 2011). With well-functioning financial markets, cash and in-kind allowances are therefore not used to expand production, but rather to increase current consumption and future consumption through savings. Consumption smoothing depends on individuals’ discount rate: individuals with strong preference for the present, that is, a high discount rate, will save less. Cash and in-kind transfers have therefore no impact on capital and profit in the long run in this case.

These predictions change if agents face financial, social or behavioral constraints which are relaxed as a result of the cash and in-kind transfers. For example, businesses facing liquidity or credit constraints should grow rapidly when given additional capital (Besley, 1995; Sadoulet et al, 2001). Whether this capital is provided in cash or in-kind should not affect the level of investment as long as people make decisions regarding asset accumulation in an integrated manner, that is, if consumption, profit, capital and saving are regarded as fungible (Fafchamps et al, 2011). However, cash and in-kind allowances can have systematically different effects if asset integration fails, for example because of self-control issues (Banerjee and Mullainathan, 2010), intra-household allocation inefficiencies (Udry, 1996) or redistributive pressures (Platteau, 2000).

A large empirical literature documents the positive impacts of cash transfers on consumption (see, e.g., Duflo (2003); Hoddinott and Skoufias (2004); Fafchamps et al (2011); Cunha (2014); Blattman et al (2014); Haushofer and Shapiro (2014); Hidrobo et al (2014)). Studies on the dynamics of social transfers and consumption show that consumption tends to peak just after the payment (Stephens Jr, 2003; Shapiro, 2005; Stephens, 2006; Mastrobuoni and Weinberg, 2009). The empirical literature also documents that cash transfers can have a positive impact on assets (Haushofer and Shapiro, 2014; Blattman et al, 2014; de Mel et al, 2008). Investment in assets can in turn generate additional income and consumption, thereby generating a multiplier effect (Sadoulet et al, 2001; Gertler et al, 2012). The impact of transfers depends on the presence of conditionalities (Baird et al, 2011), on the timing and frequency of transfers (Stephens Jr, 2003; Haushofer and Shapiro, 2014), on self-control issues, and on the extent to which preferences are present-biased (Shapiro, 2005; Ozdenoren et al, 2012; Evans and Popova, 2014; Fafchamps et al, 2011).

Recently, several studies in development economics have identified large externalities of development programs on nonbeneficiaries. These studies conclude that the impact of interventions may be substantially underestimated if such spillovers are not considered. Nonbeneficiaries may be affected by the interventions through three main channels (Glennerster and 6