In this paper we discuss the impact of malnutrition on the distribution
of abilities and income in a simple overlapping generations framework.
Workers are distributed uniformly over a low-ability and a high-ability
range. If workers earn below subsistence wages, the probability that
their children will have low abilities is higher than with above
subsistence wages due to the malnutrition resulting from low incomes.
Using a nested Ethier production function we find that there is an
optimal share of low-ability workers in the economy which maximizes
output. Due to the intergenerational propagation of low abilities
resulting from malnutrition, economies may however get trapped in
sub-optimal equilibria with too large shares of low-ability workers.
Distributing food coupons financed by taxes of the parent generation to
the offspring of these low-ability workers will increase the likelihood
that they will be in the high-ability range, permanently increasing
output for future generations. Using a numerical example, we show that
this type of redistributive policy is welfare improving if the parent
generation alive during the initiation of the policy is reimbursed for
their loss in utility due to taxes.