A network approach to welfare

Blavatnik School working paper
Social Macroeconomics working paper
Nizar Allouch
Abstract

This paper investigates the welfare impact of income redistribution for public goods in networks.

First, the authors measure the impact of income redistribution and show that it affects each consumer only insofar as it affects his neighbourhood.

Second, they characterise Pareto-improving income redistributions and relate them to the network structure.

Third, in the case of Cobb–Douglas preferences, the authors establish a new link between two well-known concepts of the comparative statics of income redistribution, the neutrality result and the transfer paradox.

Collectively, the findings uncover the importance of the −1 eigenvalue to economic and social policy: it is an indication of how the network structure induces consumers to absorb the impact of income redistribution.

About the authors

Maia King is an economist and a researcher at the Blavatnik School of Government.

Nizar Allouch is Professor of Economics at the School of Economics, University of Kent.

BSG-WP-2019/027