Allocating Stimulus Checks in Times of Crisis

TL;DR

This paper addresses the complex problem of optimally allocating stimulus checks in financial networks during crises, proposing approximation algorithms and analyzing fairness constraints to aid policymakers.

Contribution

It introduces a novel framework for allocating discrete bailouts in financial networks, including approximation algorithms with guarantees and fairness considerations.

Findings

Algorithms outperform heuristics in simulations

Fairness constraints affect optimal allocation

Method applicable to real-world financial data

Abstract

We study the problem of allocating bailouts (stimulus, subsidy allocations) to people participating in a financial network subject to income shocks. We build on the financial clearing framework of Eisenberg and Noe that allows the incorporation of a bailout policy that is based on discrete bailouts motivated by the types of stimulus checks people receive around the world as part of COVID-19 economical relief plans. We show that optimally allocating such bailouts on a financial network in order to maximize a variety of social welfare objectives of this form is a computationally intractable problem. We develop approximation algorithms to optimize these objectives and establish guarantees for their approximation rations. Then, we incorporate multiple fairness constraints in the optimization problems and establish relative bounds on the solutions with versus without these constraints. Finally, we apply our methodology to a variety of data, both in the context of a system of large financial institutions with real-world data, as well as in a realistic societal context with financial interactions between people and businesses for which we use semi-artificial data derived from mobility patterns. Our results suggest that the algorithms we develop and study have reasonable results in practice and outperform other network-based heuristics. We argue that the presented problem through the societal-level lens could assist policymakers in making informed decisions on issuing subsidies.