Place-Based Redistribution in Location Choice Models

Abstract

In many recent location choice models, households randomly vary with respect to their utility of living in a location. We demonstrate that the distribution generating this randomness is fundamentally not identifiable from location choice data and as a result the optimal allocation as 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 groups of people. Our algorithm preserves a planner's motives to redistribute due to equity considerations between different types of people and efficiency in production, the focus of many recent studies.

Keywords: Redistribution, Urban Economics, Optimal Policies

JEL Classification: R10, R11, R13