A1421
Title: Policy targeting with market equilibrium
Authors: Gyungbae Park - Brown University (United States) [presenting]
Abstract: A framework is developed for individualized treatment allocation in the presence of market equilibrium spillovers. Motivated by selective subsidy programs that reduce the price of a specific good, such as healthy-food or clean-energy coupons, the framework highlights when universal distribution is optimal, when targeted allocation dominates, and how the planner's targeting problem can be solved tractably. It is shown that the policymaker's welfare function is supermodular in treatment assignments under broad and interpretable conditions. Supermodularity implies that treatments are complements, so the welfare gain from treating one group is larger when others are also treated. This property both clarifies the trade-off between universal and targeted distribution and ensures computational feasibility, since maximizing a supermodular function can be solved in polynomial time using off-the-shelf algorithms. Statistical guarantees are also established that account for estimation uncertainty in the demand and supply equations. Finally, the proposal is illustrated in a coupon allocation problem calibrated with households expenditure data from the Philippines.
