Obstacles to Redistribution Through Markets and One Solution

TL;DR

This paper investigates the identification of distribution features necessary for optimal market design, highlighting the importance of quality variation in data for successful identification.

Contribution

It demonstrates that key distribution features are unidentifiable without quality variation, emphasizing the role of quality data in market structure analysis.

Findings

Distribution features are not identifiable from demand data alone.

Including quality variation allows full identification of the distribution.

Highlights the importance of quality data in market design applications.

Abstract

Dworczak et al. (2021) study when certain market structures are optimal in the presence of heterogeneous preferences. A key assumption is that the social planner knows the joint distribution of the value of the good and marginal value of money. This paper studies whether relevant features of this distribution are identified from choice data. We show that the features of the distribution needed to characterize optimal market structure cannot be identified when demand is known for all prices. While this is a negative result, we show that the distribution of good value and marginal utility of money is fully identified when there is an observed measure of quality that varies. Thus, while Dworczak et al. (2021) abstract from quality, we show how including quality is crucial for potential applications.