Efficient Redistribution Using Quotas and Subsidies in the Presence of Misrepresentation and Cheating

This paper introduces misrepresentation and cheating into the policy analysis of output quotas and subsidies. Analytical results show that when cheating occurs output quotas are a less efficient means of income redistribution than is traditionally believed. As well, cheating increases the transfer efficiency of output subsidies. The result is that an all-or-nothing choice between quotas and subsidies will generally favor the use of subsidies. A combination of quotas and subsidies, however, usually remains the most efficient means of income redistribution through market intervention