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Intervention Efficiency, Incentive Symmetry, and Information

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  • Earl L. Grinols

    (Hankamer School of Business, Baylor University)

  • Peri Silva

    (Kansas State University and Centro Studi Luca d’Agliano)

Abstract

Assume that government maximizes the well being of its citizens subject to technological, political, and informational constraints. How should equilibrium be perturbed so that equilibrium post-perturbation quantities satisfy new exogenously-specified bounds? We prove an intervention principle and an incentive symmetry result that jointly describe the efficient intervention plus generate for it an equivalence class of interventions. If information is imperfect, asymmetric information may render some members of the equivalence class ineffective, but not others. This fact may be exploited in selected policy applications, meaning in cases where it is possible to increase the effectiveness of traditional entitlement programs, reduce their cost, or both.

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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 334.

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Length: 26
Date of creation: 16 Jul 2012
Date of revision: 16 Jul 2012
Handle: RePEc:csl:devewp:334

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Keywords: Welfare Analysis; Policy Intervention; Theory of Policy;

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  9. Bullock, David S, 1995. "Are Government Transfers Efficient? An Alternative Test of the Efficient Redistribution Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1236-74, December.
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