Redistribution Through MarketsPiotr Dworczak, Scott Kominers and Mohammad Akbarpour Econometrica, 2021, vol. 89, issue 4, 1665-1698 Abstract: Policymakers frequently use price regulations as a response to inequality in the markets they control. In this paper, we examine the optimal structure of such policies from the perspective of mechanism design. We study a buyer‐seller market in which agents have private information about both their valuations for an indivisible object and their marginal utilities for money. The planner seeks a mechanism that maximizes agents' total utilities, subject to incentive and market‐clearing constraints. We uncover the constrained Pareto frontier by identifying the optimal trade‐off between allocative efficiency and redistribution. We find that competitive‐equilibrium allocation is not always optimal. Instead, when there is inequality across sides of the market, the optimal design uses a tax‐like mechanism, introducing a wedge between the buyer and seller prices, and redistributing the resulting surplus to the poorer side of the market via lump‐sum payments. When there is significant same‐side inequality that can be uncovered by market behavior, it may be optimal to impose price controls even though doing so induces rationing. Date: 2021 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wly:emetrp:v:89:y:2021:i:4:p:1665-1698 Ordering information: This journal article can be ordered from Access Statistics for this article Econometrica is currently edited by Guido W. Imbens More articles in Econometrica from Econometric Society Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.