Place-Based Redistribution in Location Choice Models

Abstract

In recent location choice models, households randomly vary with respect to their utility of living in a location. We demonstrate the distribution generating this randomness is not identifiable from location choice data and the optimal allocation chosen by a social planner is not identified. We propose an algorithm for setting the distribution generating the random utility across locations that implies a planner will optimally choose no redistribution in the absence of externalities or equity motives between different types of people. Our algorithm preserves a planner's motives to redistribute due to equity considerations between types of people and efficiency in production.

Keywords: Redistribution, Urban Economics, Optimal Policies

JEL Classification: R10, R11, R13