Abstract
In-kind redistribution such as the supply of a minimum level of public rental housing service to the poor may be more desirable as a measure of redistribution than cash subsidy, if the government cannot tell the difference between the poor and the rich. We show that the government should adopt the following public rental housing policy in order to avoid adverse selection, under asymmetric information about incomes of the prospective tenants between them and the government.(i) When there are two types of individuals, the poor and the rich, the minimum level of public rental housing must satisfy the incentive compatible constraint of the rich.(ii) The poorer the individuals are, the smaller public rental housing the government should supply to them at the lower rent.(iii) If individuals' utility functions for housing service are different each other, the supply of a minimum level of public rental housing may not be proper as a measure for horizontal equity, even if it avoids adverse selection.
