Efficient Income Redistribution under Asymmetric Information

This paper discusses the possibility that the presence of asymmetric information may provide more efficient income redistribution than the presence of symmetric information when the focus is on the screening problem although asymmetric information is known to cause inefficient income redistribution. The screening problem is caused when a government intervenes to alleviate poverty. Asymmetric information between individuals and the government regarding individual productivity makes it difficult for the government to target deserving individuals. A lot of studies explain that in-kind transfers, especially inferior goods, such as social housing in small apartments, or low quality wheat or rice, can succeed in solving the problem, although such goods cannot increase the poor's self-supporting efforts to escape from poverty. In this paper, we also find that not only inferior goods but also superior goods which contribute to the poor's self-supporting efforts to escape from poverty can solve the screening problem.