Optimal Redistribution Through Public Provision of Private Goods

49 Pages Posted: 28 Jan 2021 Last revised: 16 Aug 2021

Date Written: December 1, 2020


How does a private market influence the optimal design of a public program? In this paper, I study a designer who has preferences over how a public option and a private good are allocated. However, she can design only the public option. Her design affects the distribution of consumers who purchase the private good—and hence equilibrium outcomes. I characterize the optimal mechanism and show how it can be computed explicitly. I derive comparative statics on the value of the public option and show that the optimal mechanism generally rations the public option. Finally, I examine implications on the optimal design when the designer can intervene in the private market or introduce an individual mandate.

Keywords: public option, redistribution, rationing, public provision, mechanism design

JEL Classification: C61, D47, D61, D63, D82

Suggested Citation

Kang, Zi Yang, Optimal Redistribution Through Public Provision of Private Goods (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3743431 or http://dx.doi.org/10.2139/ssrn.3743431

Zi Yang Kang (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

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