Is Dependency Always Bad

Concerns over dependency have long been cited by skeptics of safety nets. But dependency is an emotionally charged term, so it is worth pausing to consider what lies behind it and how robust the empirical evidence about it is. Lentz, Barrett, and Hoddinott (2005) provide a model of how to do this, writing about food aid in response to emergencies and reviewing a largely African literature. 

Barrett, and Hoddinott (p. 10) consider that a household or community exhibits dependency when it cannot meet its immediate basic needs without external assistance. They point out that dependence is not always bad, since the alternative to external assistance may be destitution. They use the term positive dependency to refer to such welfare-enhancing assistance and negative dependency to refer to situations in which external assistance helps meet current needs but is achieved at the cost of reducing recipients capacity to meet their own basic needs in the future without external assistance. 

In reviewing the many avenues through which such negative dependency may occur at the household level, the authors find little evidence that food aid discourages the labor supply of households that receive aid, crowds out remittances, or encourages moral hazard (the assumption of unwarranted risk). 

They point to an alternative definition of dependency, when rather than households it is governments that come to rely on relief resources. But they show evidence that because aid is quite irregular—multilateral aid flows via the World Food Programme respond only weakly but at least predictably to shocks, bilateral aid flows from the United States do not respond to shocks at all—governments cannot become dependent on it. The authors also find that food aid has no persistent negative effects on national food production. 

Concerns over dependency in other settings are usually less precisely defined, often concerning issues about the opportunity costs of fonds devoted to transfers and one or more of the negative disincentives possible at the household level. In this book, we have therefore found it appropriate to discuss each issue separately rather than taking on dependency in the generic. 

---