The Optimal Allocation of Resources among Heterogeneous Individuals
Journal of Economic Dynamics and Control 138 (May 1, 2022): 104352. https://doi.org/10.1016/j.jedc.2022.104352
35 Pages Posted: 30 Mar 2020 Last revised: 8 Apr 2022
Date Written: March 2, 2020
A planner has Atkinson-CES preference aggregation over individual outcomes and allocates W units of discrete or bounded-continuous resources among N candidate recipients. Conditional on observables, outcomes without allocations and the marginal effects of allocations are heterogeneous across individuals. Despite combinatorial explosion with rising N, the optimal allocation function has closed-form solutions when marginal effects are non-increasing. Solutions are characterized by resource-invariant optimal allocation queues that sequence the order in which individuals begin and stop to receive allocations. The welfare distances between optimal and alternative allocations are measured in percentage resource losses as resource equivalent variations.
Keywords: Targeting, Optimal Allocation, Welfare, Combinatorial Discrete Choice, Constrained Optimization
JEL Classification: I38, O12, D6, C61
Suggested Citation: Suggested Citation