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Welfare targeting in networks

Nizar Allouch and Maia King

No 74mur, SocArXiv from Center for Open Science

Abstract: This paper investigates welfare targeting for public goods in networks. First, we show that a tax/subsidy scheme (not necessarily budget-balanced) affects each consumer only insofar as it affects his neighbourhood. Second, we show that either a Pareto-improving income redistribution can be found or there exist Negishi weights, which we relate to the network structure. Third, in the case of Cobb–Douglas preferences, we show that a law of welfare targeting holds and links two well-known notions of the comparative statics of policy interventions: neutrality and welfare paradoxical effects. Collectively, our findings uncover the importance of the −1 eigenvalue to economic and social policy: it is an indication of how consumers absorb the impact of income redistribution.

Date: 2020-08-06
New Economics Papers: this item is included in nep-net and nep-ure
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DOI: 10.31219/

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