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Optimal In-Kind Redistribution

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  • Zi Yang Kang
  • Mitchell Watt

Abstract

This paper develops a model of in-kind redistribution where consumers participate in either a private market or a government-designed program, but not both. We characterize when a social planner, seeking to maximize weighted total surplus, can strictly improve upon the laissez-faire outcome. We show that the optimal mechanism consists of three components: a public option, nonlinear subsidies, and laissez-faire consumption. We quantify the resulting distortions and relate them to the correlation between consumer demand and welfare weights. Our findings reveal that while private market access constrains the social planner's ability to redistribute, it also strengthens the rationale for non-market allocations.

Suggested Citation

  • Zi Yang Kang & Mitchell Watt, 2024. "Optimal In-Kind Redistribution," Papers 2409.06112, arXiv.org, revised Oct 2024.
    • Handle: RePEc:arx:papers:2409.06112
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    References listed on IDEAS

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    1. Daniel Waldinger, 2021. "Targeting In-Kind Transfers through Market Design: A Revealed Preference Analysis of Public Housing Allocation," American Economic Review, American Economic Association, vol. 111(8), pages 2660-2696, August.
    2. Zachary Liscow & Abigail Pershing, 2022. "Why Is So Much Redistribution In-Kind and Not in Cash? Evidence from a Survey Experiment," National Tax Journal, University of Chicago Press, vol. 75(2), pages 313-354.
    3. Blomquist, Soren & Christiansen, Vidar, 1998. "Topping Up or Opting Out? The Optimal Design of Public Provision Schemes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 399-411, May.
    4. Yeon-Koo Che & Ian Gale & Jinwoo Kim, 2013. "Assigning Resources to Budget-Constrained Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 73-107.
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