Subsidy Design and Asymmetric Information: Wealth versus Benefits
Simona Grassi () and
Ching-to Ma ()
No WP2007-033, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics
A government or public organization would like to subsidize an indivisible good. Consumers’ valuations of the good vary according to their wealth and benefits from the good. Education, medical care, and housing are common examples. A regulator has access to either wealth or benefit information, but not both. We present a method to translate a wealth-based policy to a benefit-based policy, and vice versa. We give a necessary and sufficient condition for the wealth-based policy and translated benefit-based policy to implement the same assignment: consumers choose to purchase the good under the wealth-based policy if and only if they choose to do so under the translated benefit-based policy. General taxation allows equivalent wealth-based and benefit-based policies to generate the same revenue from consumers.
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