"We Are the World": When More Equality Improves Efficiency and Antipandemic Consumptions Are Intervened

ABSTRACT

There are two general challenges for social planners in combating a pandemic how to increase antipandemic consumptions that exhibit widespread externality, and how to trade-off between efficiency and equality. We show that these conventional concerns need not always be valid. We consider a market for antipandemic resources, where two groups of people can be either high or low in their (diminishing) marginal private returns and the suppliers are price takers with increasing marginal costs. Our basic result is that the socially efficient consumption is higher for the low type but can be lower for the high type, relative to the competitive equilibrium. This is because the high type's consumption is crowded out by that of low type who turns out to be marginally more productive in generating social benefits. Therefore, more equal consumptions can be efficient. Discriminatory subsidies in favor of the low type can maximize social welfare while yielding more equal consumptions. Quantity forcing or rationing can increase both social welfare and equality. In addition, policy portfolios combining uniform subsidy with quantity forcing or rationing can achieve full efficiency. Moreover, the main results are robust to alternative demand-side specifications, as long as the groups are sufficiently heterogenous in their overall consumption incentives.