Abstract
A government would like to subsidize an indivisible good. Consumers’ valuations of the good vary according to their wealth and benefits from the good. A subsidy scheme may be based on consumers’ wealth or benefit information. We translate a wealth-based policy to a benefit-based policy, and vice versa, and give a necessary and sufficient condition for the pair of policies 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 policies to require the same budget.
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Grassi, S., Ma, Ct.A. Subsidy design: wealth versus benefits. J Econ 101, 49–72 (2010). https://doi.org/10.1007/s00712-010-0144-1
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DOI: https://doi.org/10.1007/s00712-010-0144-1
Keywords
- Subsidy design
- Wealth-based policies
- Benefit-based policies
- Assignment set
- Translation between subsidy policies
- Equivalence between subsidy policies
- Cost-effectiveness
- Means-testing