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An Information Theory of Efficient Differential Treatment

Author

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  • Emil Temnyalov

Abstract

When are differential treatment policies—such as preferential treatment, affirmative action, and gender equity policies—justified by efficiency concerns? I propose a nonparametric assignment model where a policymaker assigns agents to different treatments or positions to maximize total surplus, based on the agents' characteristics and noisy information about their types. I provide necessary and sufficient conditions on the agents' signal structures, which characterize whether surplus maximization requires differential treatment or not, and study how the bias and informativeness of signal structures determine the efficiency implications of differential treatment. I examine implications of this model for inequality, decentralization, and empirical work.

Suggested Citation

  • Emil Temnyalov, 2023. "An Information Theory of Efficient Differential Treatment," American Economic Journal: Microeconomics, American Economic Association, vol. 15(1), pages 323-358, February.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:1:p:323-58
    DOI: 10.1257/mic.20200400
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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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