Rediet Abebe: Subsidy Allocations in the Presence of Income Shocks

Abstract: 
Poverty and economic hardship are understood to be highly complex and dynamic phenomena. Due to the multi-faceted nature of economic welfare, assistance programs targeted at alleviating hardship can face challenges, as they often rely on simpler measures of welfare, such as income or wealth, that fail to capture to full complexity of families' state. Here, we explore one important dimension -- susceptibility to income shocks. We introduce a model of welfare that incorporates income, wealth, and income shocks. We analyze this model to show that it can vary, at times substantially, from measures of welfare that only use income or wealth.


We then study the problem of optimally allocating subsidies in the presence of income shocks. We consider two well-studied objectives: the first aims to minimize the expected number of agents that fall below a given welfare threshold (a min sum objective) and the second aims to minimize the likelihood that the most vulnerable agent falls below this threshold (a min-max objective). We present optimal and near-optimal algorithms for various general settings. We close with a discussion on future directions on allocating societal resources and the Mechanism Design for Social Good initiative -- an interdisciplinary, multi-institutional research group working to improve access to opportunity for historically disadvantaged communities.