Intervention Efficiency, Incentive Symmetry, and Information

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 e¤ectiveness of traditional entitlement programs, reduce their cost, or both.

Keywords: welfare analysis, policy intervention, theory of policy

JEL Classification: D61, D62