Zi Yang Kang
Assistant Professor at the University of Toronto
- 150 St. George Street
- Toronto, ON M5S 3G7, Canada
- zy.kang@utoronto.ca
- Google Scholar
- @ZiYangKang
Research
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Publications
Robustness Measures for Welfare Analysis (with Shosh Vasserman) PDF Twitter
August 2025, in American Economic Review, 115(8), 2449–87.
Economists routinely make functional form assumptions on demand curves to derive welfare conclusions. How sensitive are these conclusions to such assumptions? In this paper, we develop robustness measures that quantify the extent to which the true demand curve must deviate from common functional form assumptions in order to overturn a welfare conclusion. We parametrize this variability in terms of the gradient and curvature of the demand curve. By leveraging tools from information design, we show that our measures are easy to compute. Our measures are also flexible and easy to use, as we illustrate through empirical applications.
Working Papers
Pareto-Improving Pricing: Why 3 Is Better Than 2 (with Piotr Dworczak) PDF
August 2026
We study the design of priority pricing systems with heterogeneous agents in environments in which improving quality for some agents reduces the average quality that can be provided. Contrary to the equity–efficiency tradeoff emphasized in public debates, we show that under economically natural conditions priority pricing can Pareto-improve on an equal-allocation benchmark. Such an improvement requires at least three priority tiers, combining higher quality for a fee, lower quality with compensation, and an intermediate tier at the benchmark quality; two tiers are never enough. Our results provide a framework for overcoming equity–efficiency tensions in applications such as lane pricing, waiting-line design, public provision, and insurance.
Public Displays of Alignment (with Joris Mueller, Jaya Wen, and Cheryl Wu) PDF
August 2026
Why do firms publicly echo government language? Two common explanations are noise, under which alignment is payoff-irrelevant, and government consumption, under which the regime rewards aligned firms because it directly values alignment. We propose a third explanation: the regime can use alignment to screen firms for costly political support. We develop a contracting framework encompassing all three explanations and derive two results. First, absent screening, alignment cannot predict differences in firms' mean payoff responses or costly actions when political stress materializes. Second, under optimal screening, lower-cost firms align, provide greater support, and receive more favorable treatment. We test these predictions using a transparent measure constructed from listed Chinese firms' use of regime-specific phrases in annual reports. More-aligned firms experience larger valuation losses after an adverse political shock and provide costly support by retaining more workers during local labor unrest. Within our framework, these responses rule in a screening role and are consistent with optimal screening.
Topping Up and Optimal Redistribution (with Mitchell Watt) PDF
June 2026, subsumes our earlier working papers "Optimal Redistribution Through Subsidies" and "Optimal In-Kind Redistribution"
This paper studies how topping up—allowing recipients of in-kind transfers to supplement subsidized consumption in a private market—affects optimal redistribution. Consumers can access a competitive private market, while a social planner offers an alternative nonlinear price schedule. We show that the effect of topping up depends on the correlation between redistributive priority and demand. When the correlation is positive, topping up does not affect the optimal mechanism. When the correlation is negative, topping up weakens screening and reduces redistribution. At the extensive margin, topping up reduces the set of environments in which intervention is optimal. At the intensive margin, topping up reduces both the scope of a free public option and the mass of consumers served. We characterize the optimal mechanisms and show how topping up changes comparative statics with respect to redistributive priorities.
Prices vs. Quantities: Robust Regulation PDF
March 2026
This paper revisits the classic instrument choice problem in a setting with consumption externalities, through the lens of robust mechanism design. A regulator can implement any incentive-compatible policy but is uncertain about how individual demand is correlated with marginal externalities, and evaluates policies by worst-case welfare. The optimal policy is a quantity control: a floor for positive externalities and a ceiling for negative externalities. If the sign of the correlation is known, a uniform tax or subsidy can be optimal. The framework also applies to regulatory uncertainty and costly screening, providing a welfare-based explanation for the prevalence of non-price policies.
Optimal Indirect Regulation of Externalities PDF Slides (short)
January 2024
This paper studies the regulation of a good that generates different amounts of an externality on consumption. Direct taxation of the externality is assumed to be infeasible; instead, the good itself is taxed to indirectly regulate the externality. I show that the deadweight loss due to any nonlinear tax on the good is equal to the Bregman divergence between the allocation that the tax induces and the first-best allocation. This yields a regression-based method to derive the deadweight loss-minimizing tax. I use this method to show that quantity controls, such as bans and mandates, can be optimal. I quantify the welfare gains of using a nonlinear tax over a linear tax. Finally, I illustrate policy implications by applying my results to the taxation of vehicle miles traveled to regulate automobile externalities.
The Public Option and Optimal Redistribution PDF
January 2023
This paper examines how the equilibrium effects of a public option on the private market impact its optimal design. I develop a model in which a policymaker can choose the quality and allocation of the public option, which affect the prices of private goods (and vice versa) in equilibrium. I demonstrate how these equilibrium effects change both the optimal quality and optimal allocation: they create new incentives to distort quality in either direction depending on the policymaker's redistributive objective and provide a new justification for rationing the public option rather than using market-clearing prices. Finally, I show how my results can accommodate additional frictions in the private market and additional policy instruments.
Contracting and Vertical Control by a Dominant Platform (with Ellen Muir) PDF
January 2022
We study a platform that sells productive inputs (such as e-commerce and distribution services) to a fringe of producers in an upstream market, while also selling its own output in the corresponding downstream market. The platform faces a tradeoff: any output that it sells downstream increases competition with the fringe of producers and lowers the downstream price, which in turn reduces demand for the platform’s productive inputs and decreases upstream revenue. Adopting a mechanism design approach, we characterize the optimal menu of contracts the platform offers in the upstream market. These contracts involve price discrimination in the form of nonlinear pricing and quantity discounts. If the platform is a monopoly in the upstream market, then we show that the tradeoff always resolves in favor of consumers and at the expense of producers. However, if the platform faces competition in the upstream market, then it has an incentive to undermine this competition by engaging in activities, such as “killer” acquisitions and exclusive dealing, that harm both consumers and producers.
Conference Publications
Fixed-Price Approximations in Bilateral Trade (with Francisco Pernice and Jan Vondrák) PDF
August 2021, in Proceedings of the 2022 Annual ACM–SIAM Symposium on Discrete Algorithms (SODA '22), pp. 2964–2985.
We consider the bilateral trade problem, in which two agents trade a single indivisible item. It is known that the only dominant-strategy truthful mechanism is the fixed-price mechanism: given commonly known distributions of the buyer's value $B$ and the seller's value $S$, a price $p$ is offered to both agents and trade occurs if $S \leq p \leq B$. The objective is to maximize either expected welfare, $\mathbb{E}\!\left[S + (B-S) \mathbf{1}_{S \leq p \leq B}\right]$, or expected gains from trade, $\mathbb{E}\!\left[(B-S) \mathbf{1}_{S \leq p \leq B}\right]$.
We improve the approximation ratios for several welfare maximization variants of this problem. When the agents' distributions are identical, we show that the optimal approximation ratio for welfare is $(2+\sqrt{2})/4$. With just one prior sample from the common distribution, we show that a $3/4$-approximation to welfare is achievable. When agents' distributions are not required to be identical, we show that a previously best-known $(1-1/e)$-approximation can be strictly improved, but $1-1/e$ is optimal if only the seller's distribution is known.
We improve the approximation ratios for several welfare maximization variants of this problem. When the agents' distributions are identical, we show that the optimal approximation ratio for welfare is $(2+\sqrt{2})/4$. With just one prior sample from the common distribution, we show that a $3/4$-approximation to welfare is achievable. When agents' distributions are not required to be identical, we show that a previously best-known $(1-1/e)$-approximation can be strictly improved, but $1-1/e$ is optimal if only the seller's distribution is known.
Older Working Papers
Fixed-Price Approximations to Optimal Efficiency in Bilateral Trade (with Jan Vondrák) PDF
September 2019, partially superseded by "Fixed-Price Approximations in Bilateral Trade" (with Francisco Pernice and Jan Vondrák).
This paper studies fixed-price mechanisms in bilateral trade with ex ante symmetric agents. We show that the optimal price is particularly simple: it is exactly equal to the mean of the agents’ distribution. The optimal price guarantees a worst-case performance of at least 1/2 of the first-best gains from trade, regardless of the agents’ distribution. We also show that the worst-case performance improves as the number of agents increases, and is robust to various extensions. Our results offer an explanation for the widespread use of fixed-price mechanisms for size discovery, such as in workup mechanisms and dark pools.