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on Microeconomics |
| By: | Andrea Attar; Eloisa Campioni; Thomas Mariotti; Alessandro Pavan |
| Abstract: | We study the design of market information in competing-mechanism games. We identify a new dimension, private disclosures, whereby the principals asymmetrically inform the agents of how their mechanisms operate. We show that private disclosures have two important effects. First, they can raise a principal's payoff guarantee against her competitors' threats. Second, they can support equilibrium outcomes and payoffs that cannot be supported with standard mechanisms. These results call for a novel approach to competing mechanisms, which we develop to identify a canonical game and a canonical class of equilibria, thereby establishing a new revelation principle for this class of environments. |
| Keywords: | incomplete information, competing mechanisms, private disclosures, revelation principle |
| JEL: | D82 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11991 |
| By: | Joshua S. Gans |
| Abstract: | This paper examines a new moral hazard in delegated decision-making: authors can embed hidden instructions—known as prompt injections—to bias AI referees in academic peer review, thereby hijacking machine recommendations. Because AI reviews are relatively inexpensive compared to manual assessments, referees would otherwise delegate fully, which undermines quality. The paper shows that moderate detection of manipulation can paradoxically improve welfare. With intermediate detection probabilities, only low-quality authors undertake manipulation, and detection becomes informative about quality, inducing referees to mix between manual and AI reviews. This partially separating equilibrium preserves the value of peer review when AI quality is intermediate. When detection is too low, all bad papers are manipulated and the market unravels; when detection is perfect, referees use only AI and acceptance collapses. Thus, some prompt injection must be tolerated to sustain the market: it disciplines referees and generates information. The results caution against zero-tolerance enforcement and highlight how prompt injection can, counterintuitively, play a welfare-enhancing role when AI reviews are easily produced. |
| JEL: | D82 D86 O33 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34082 |
| By: | Prummer, Anja; Nava, Francesco |
| Abstract: | We study a principal who allocates a good to agents with private, independently distributed values through an optimal mechanism. The principal can strategically shape these value distributions by modifying the good's features, which affect agents' valuations. Our analysis reveals that optimal designs are frequently divisive-creating goods that appeal strongly to specific agents or agent types while being less valued by others. These divisive designs reduce information rents and increase total surplus, at the expense of competition. Even when total surplus is constrained, some divisiveness in designs remains optimal. |
| Keywords: | Value Design, Mechanism Design, Differentiation |
| JEL: | D82 D46 L15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fubsbe:323229 |
| By: | Christoph Carnehl; Anton Sobolev; Konrad Stahl; André Stenzel; Konrad O. Stahl |
| Abstract: | We study information design in a vertically differentiated market. Two firms offer products of ex-ante unknown qualities. A third party designs a system to publicly disclose information. More precise information guides consumers toward their preferred product but increases expected product differentiation, allowing firms to raise prices. Full disclosure of the product ranking alone suffices to maximize industry profits. Consumer surplus is maximized, however, whenever no information about the product ranking is disclosed, as the benefit of competitive pricing always dominates the loss from suboptimal choices. The provision of public information on product quality becomes questionable. |
| Keywords: | information design, vertical product differentiation, quality rankings, competition |
| JEL: | D43 D82 L13 L15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12038 |
| By: | Bloch, Francis (Universite Paris 1 and Paris School of Economics); Dziubinsk, Marcin (Institute of Informatics, University of Warsaw); Dutta, Bhaskar (University of Warwick and Ashoka University) |
| Abstract: | A planner wants to select one agent out of n agents on the basis of a binary characteristic that is commonly known to all agents but is not observed by the planner. Any pair of agents can either be friends or enemies or impartials of each other. An individual's most preferred outcome is that she be selected. If she is not selected, then she would prefer that a friend be selected, and if neither she herself or a friend is selected, then she would prefer that an impartial agent be selected. Finally, her least preferred outcome is that an enemy be selected. The planner wants to design a dominant strategy incentive compatible mechanism in order to be able choose a desirable agent. We derive sufficient conditions for existence of efficient and DSIC mechanisms when the planner knows the bilateral relationships between agents. We also show that if the planner does not know the network these relationships, then there is no efficient and DSIC mechanism and we compare the relative efficiency of two second-best DSIC mechanisms. Finally, we obtain sharp characterization results when the network of friends and enemies satisfies structural balance. |
| Keywords: | Peer selection ; Network, Mechanism design without money ; Dominant strategy incentive compatibility |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1571 |
| By: | Justus Preusser |
| Abstract: | This paper studies a market in which a patient long-lived seller offers prices to short-lived buyers. A hidden state determines whether the buyer's common value exceeds the seller's reservation value, and all players only have noisy signals. If the seller has commitment power, the seller waits for a buyer with the most favorable signal to arrive, and else exits the market. Using techniques for monotone decision problems, this waiting strategy is shown to be optimal for learning whether trade is efficient. Due to the interplay between the seller's and the buyers' information, the seller's decision to exit may be non-monotonic in the seller's information, and prices may be non-monotonic over time. Without commitment power, there is an equilibrium in which the seller also waits for a buyer with the most favorable signal, but the seller exits at inefficient times. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.06132 |
| By: | Zach Y. Brown; Alexander MacKay |
| Abstract: | We examine a model in which one firm uses a pricing algorithm that enables faster pricing and multi-period commitment. We characterize a coercive equilibrium in which the algorithmic firm maximizes its profits subject to the incentive compatibility constraint of its rival. By adopting an algorithm that enables faster pricing and (imperfect) commitment, a firm can unilaterally induce substantially higher equilibrium prices even when its rival maximizes short-run profits and cannot collude. The algorithmic firm can earn profits that exceed its share of collusive profits, and coercive equilibrium outcomes can be worse for consumers than collusive outcomes. In extensions, we incorporate simple learning by the rival, and we explore the implications for platform design. |
| JEL: | D43 L13 L40 L81 L86 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34070 |
| By: | Giuseppe De Marco (University of Napoli Parthenope and CSEF and Università degli Studi di Napoli Federico II); Maria Romaniello (University of Campania Luigi Vanvitelli.); Alba Roviello (Department of Economics and Statistics, University of Napoli Federico II.) |
| Abstract: | This paper examines how guilt aversion affects the equilibria of symmetric 2×2 games with the same Nash equilibrium structure as the Hawk–Dove game: two asymmetric strict pure equilibria and one completely mixed-strategy equilibrium. We classify these generalized Hawk–Dove games into two subclasses, Type 1 and Type 2, based on players’ preferences over deviations toward symmetric profiles. We characterize best-reply correspondences and equilibria under guilt aversion, showing that outcomes are highly sensitive to guilt parameters. In Type 1 games, when guilt sensitivity exceeds a threshold, a new symmetric equilibrium emerges while the mixed-strategy equilibrium disappears. In Type 2 games, guilt aversion affects only the mixed equilibrium, leaving the two asymmetric equilibria unchanged. |
| Keywords: | Hawk-Dove games, equilibria, guilt aversion, psychological games, ambiguous beliefs. |
| JEL: | D81 |
| Date: | 2025–01–08 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:756 |
| By: | Yukihiro Nishimura (Osaka University and CESifo) |
| Abstract: | Online markets like app stores are typically characterized by a monopoly who set prices on both sides — the prices of the network good (such as iPhone) and the commission fee to participating firms. There is an ongoing concerns on the welfare consequences of imperfect competition, where the antitrust authorities in the EU are keen about the monopolistic commission fee. With online apps as a representative example, this study investigates the welfare effects of price ceiling policies. The following results are shown. If the network-size externality on apps’ price is stronger than the app variety’s network externality, then, first, the price ceiling on the network good increases both the producer surplus of the app developers and the consumer surplus of the end-users. Second, in contrast, the price ceiling on the commission fee for the developers reduces the consumer surplus. The reverse proposition holds when the order of the strength of two network externalities is reversed. By the level of the unconstrained equilibrium commission fee, a regulator can identify which policy would make both consumers and developers better off. |
| Keywords: | Digital economy; Platform; Antitrust pricing; Network externality |
| JEL: | F23 L13 D85 K21 L86 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2505 |
| By: | Pooya Molavi |
| Abstract: | An agent is a misspecified Bayesian if she updates her belief using Bayes' rule given a subjective, possibly misspecified model of her signals. This paper shows that a belief sequence is consistent with misspecified Bayesianism if the prior contains a grain of the average posterior, i.e., is a mixture of the average posterior and another distribution. A partition-based variant of the grain condition is both necessary and sufficient. Under correct specification, the grain condition reduces to the usual Bayes plausibility. The condition imposes no restriction on the posterior given a full-support prior over a finite or compact state space. However, it rules out posteriors that have heavier tails than the prior on unbounded state spaces. The results cast doubt on the feasibility of testing Bayesian updating in many environments. They also suggest that many seemingly non-Bayesian updating rules are observationally equivalent to Bayesian updating under misspecified beliefs. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.22775 |
| By: | Xiaotie Deng; Yanru Guan; Ningyuan Li; Zihe Wang; Jie Zhang |
| Abstract: | This paper studies mechanism design for revenue maximization in a distribution-reporting setting, where the auctioneer does not know the buyers' true value distributions. Instead, each buyer reports and commits to a bid distribution in the ex-ante stage, which the auctioneer uses as input to the mechanism. Buyers strategically decide the reported distributions to maximize ex-ante utility, potentially deviating from their value distributions. As shown in previous work, classical prior-dependent mechanisms such as the Myerson auction fail to elicit truthful value distributions at the ex-ante stage, despite satisfying Bayesian incentive compatibility at the interim stage. We study the design of ex-ante incentive compatible mechanisms, and aim to maximize revenue in a prior-independent approximation framework. We introduce a family of threshold-augmented mechanisms, which ensures ex-ante incentive compatibility while boosting revenue through ex-ante thresholds. Based on these mechanisms, we construct the Peer-Max Mechanism, which achieves an either-or approximation guarantee for general non-identical distributions. Specifically, for any value distributions, its expected revenue either achieves a constant fraction of the optimal social welfare, or surpasses the second-price revenue by a constant fraction, where the constants depend on the number of buyers and a tunable parameter. We also provide an upper bound on the revenue achievable by any ex-ante incentive compatible mechanism, matching our lower bound up to a constant factor. Finally, we extend our approach to a setting where multiple units of identical items are sold to buyers with multi-unit demands. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.04030 |
| By: | Rémi Avignon; Claire Chambolle; Etienne Guigue; Hugo Molina |
| Abstract: | This article bridges monopoly, monopsony, and countervailing power theories to analyze their welfare implications in a vertical supply chain. We develop a bilateral monopoly model with bargaining that accommodates upstream monopsony and downstream monopoly power. In equilibrium, the ‘‘short-side rule'' applies: the quantity exchanged is determined by the firm willing to trade less. Welfare is maximized when each firm's bargaining power exactly countervails the other's market power. Otherwise, double marginalization arises in the form of double markdownization under excessive downstream bargaining power, or double markupization under excessive upstream bargaining power. We offer novel insights for price regulation and competition policy. |
| Keywords: | markups, markdowns, bargaining, countervailing buyer power, monopsony power, bilateral monopoly |
| JEL: | C78 D42 J42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12026 |
| By: | Khan, Abhimanyu; Peeters, Ronald |
| Abstract: | We characterize stable market structures under price-competition in differentiated markets when multiple cartels may form. Market structures without cartelisation are never stable and always involve multiple small cartels, and, but for one knife-edge case, only involves multiple small cartels. Combined with the result that the unique stable market structure under quantity-competition is also characterised by multiple small cartels, this underscores the importance of considering the possibility of multiple cartels in competition policy. Comparing stable market structures under price and quantity competition, we find that prices and profits are higher under price-competition whenever the market is sufficiently differentiated or sufficiently concentrated. |
| Keywords: | multiple cartels; stable cartels; price competition; differentiated markets |
| JEL: | C70 D43 L13 |
| Date: | 2025–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125199 |
| By: | Puppe, Clemens; Tasnádi, Attila |
| Abstract: | We study the aggregation of partial orders into a complete ordering, and prove both possibility and impossibility results in this context. First, we show that the standard independence of irrelevant alternatives condition is stronger here since even dictatorial aggregation rules may fail to satisfy it. On the other hand, domain restrictions enable non-dictatorial aggregation rules satisfying a number of attractive properties. In particular, we show that anonymous aggregation satisfying a weak form of independence of irrelevant alternatives is possible on a large class of 'extended' Condorcet domains. |
| Keywords: | Multi-criteria decision making, aggregation of partial orders and incomplete lists, Arrow's theorem |
| JEL: | D71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kitwps:323217 |
| By: | F. Nguyen |
| Abstract: | The "free trial" followed by automatic renewal is a dominant business model in the digital economy. Standard models explain trials as a mechanism for consumers to learn their valuation for a product. We propose a complementary theory based on the rational inattention framework. Consumers know their valuation but face a cognitive cost to remember to cancel an unwanted subscription. We model this using a Shannon entropy-based cost of information processing, where a consumer's baseline attention level decays with the length of the trial period. This creates a novel trade-off for a monopolist firm: a longer trial increases "inattentive revenue" from consumers who fail to cancel, but it also lowers ex-ante consumer utility, making the initial offer less attractive. We show that this trade-off leads to an interior optimal trial length, even for products where value-learning is instantaneous. Our model, under standard assumptions about demand elasticity and the distribution of consumer valuations, generates sharp, testable predictions about the relationship between contract terms. We find that the optimal renewal price and trial length are complements: firms offering longer trials will also set higher post-trial prices. We analyze the impact of policies aimed at curbing consumer exploitation, such as "click-to-cancel" regulations. We show that such policies, by making attention effectively cheaper, lead firms to reduce trial lengths. The effect on price depends directly on the elasticity of demand from loyal subscribers. We also extend the model to include paid trials, showing that introductory prices and trial lengths act as strategic substitutes. Our framework provides a micro-founded explanation for common features of subscription contracts and offers a new lens through which to evaluate consumer protection policies in digital markets. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.06422 |
| By: | Satoshi Nakada; Shmuel Nitzan; Takashi Ui |
| Abstract: | This paper proposes normative criteria for voting rules under uncertainty about individual preferences. The criteria emphasize the importance of responsiveness, i.e., the probability that the social outcome coincides with the realized individual preferences. Given a convex set of probability distributions of preferences, denoted by $P$, a voting rule is said to be $P$-robust if, for each probability distribution in $P$, at least one individual's responsiveness exceeds one-half. Our main result establishes that a voting rule is $P$-robust if and only if there exists a nonnegative weight vector such that the weighted average of individual responsiveness is strictly greater than one-half under every extreme point of $P$. In particular, if the set $P$ includes all degenerate distributions, a $P$-robust rule is a weighted majority rule without ties. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.22655 |
| By: | Bernhard Ganglmair; Julian Klix; Dongsoo Shin |
| Abstract: | Many business relationships rely on loose arrangements and relational dynamics in early interactions, only to solidify their alliances through contractual committments later. Using a repeated-games framework with a finite horizon, we show how such a hybrid-contracting strategy can both extend the duration of a cooperative business relationship (intensive margin) and expand the set of environments in which cooperation can be achieved (extensive margin). We model the contractual commitment part of hybrid contracting as a smooth-landing contract that restricts the action space only in the backend of the relationship. Such a flexible contract outperforms more rigid contractual arrangements because it does not crowd out early-stage cooperation, thereby complementing relational dynamics. Our results are robust to extensions that account for variations in contract costs and timing, and we show that optimal contract length trades off profitability with implementability. |
| Keywords: | contracts, hybrid contracting, incomplete contracts, relational contracts, repeated games, R&D, strategic alliances |
| JEL: | C73 D86 L14 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_695 |
| By: | Oğuzhan Çelebi; Joel P. Flynn |
| Abstract: | How should authorities that care about match quality and diversity allocate resources in the face of uncertainty? We introduce adaptive priority mechanisms (APM) that prioritize agents based on their scores and characteristics. We show that APM uniquely implement the ex post optimal allocation. The ubiquitous priority and quota mechanisms are optimal if and only if the authority is risk-neutral or extremely risk-averse over diversity, respectively. Deferred Acceptance implements the unique stable matching when all authorities use the optimal APM. We provide a practical roadmap for implementing APM as a market-design solution and illustrate this using Chicago Public Schools data. |
| JEL: | C78 D47 D61 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34035 |
| By: | Tan Gan; Hongcheng Li |
| Abstract: | An employer contracts with a worker to incentivize efforts whose productivity depends on ability; the worker then enters a market that pays him contingent on ability evaluation. With non-additive monitoring technology, the interdependence between market expectations and worker efforts can lead to multiple equilibria (contrasting Holmstrom (1982/1999); Gibbons and Murphy (1992)). We identify a sufficient and necessary criterion for the employer to face such strategic uncertainty--one linked to skill-effort complementarity, a pervasive feature of labor markets. To fully implement work, the employer optimally creates private wage discrimination to iteratively eliminate pessimistic market expectations and low worker efforts. Our result suggests that present contractual privacy, employers' coordination motives generate within-group pay inequality. The comparative statics further explain several stylized facts about residual wage dispersion. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.22852 |
| By: | Francesca Barigozzi; Chiara Canta; Helmuth Cremer |
| Abstract: | This paper studies how firms’ ownership choices and workers’ intrinsic motivation jointly shape service quality and market outcomes in labor-intensive, mission-driven sectors. Two organizations first choose whether to operate as standard for-profit or as mission-oriented firms, and then compete in both the labor and the user markets. Mission-oriented firms have higher unit costs but attract better-motivated workers. Service quality is endogenously determined through the sorting of intrinsically motivated workers and depends on the firm's ownership type. We show that all market structures - standard, mission-oriented, or mixed - can arise in equilibrium, and that mixed structures can be Pareto superior by efficiently allocating the most motivated workers to the mission-oriented firm while preserving the cost advantage of the other firm. While equilibrium outcomes generally diverge from the social optimum due to externalities and lack of coordination, they are both driven by the trade-off between cost-efficiency and motivation. The model helps explain the coexistence of heterogeneous ownership structures observed in some sectors - such as the nursing homes sector - and identifies conditions under which such diversity is welfare-enhancing. |
| Keywords: | mission-driven sectors, mission-oriented firms, workers' motivation, endogenous market structure, welfare |
| JEL: | J21 L13 L31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12011 |
| By: | Somdeb Lahiri |
| Abstract: | We provide an axiomatic characterization of lexicographic preferences over the set of all random availability functions using two assumptions. The first assumption is strong monotonicity, which in our framework is equivalent to the strong dominance property in microeconomics. The second assumption is independence of worse alternatives and we show that a weaker version of the same suffices for our purpose. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.12997 |
| By: | Md Mahadi Hasan |
| Abstract: | I develop a theoretical model to examine how the rise of autonomous AI (artificial intelligence) agents disrupts two-sided digital advertising markets. Through this framework, I demonstrate that users' rational, private decisions to delegate browsing to agents create a negative externality, precipitating declines in ad prices, publisher revenues, and overall market efficiency. The model identifies the conditions under which publisher interventions such as blocking AI agents or imposing tolls may mitigate these effects, although they risk fragmenting access and value. I formalize the resulting inefficiency as an ``attention lemons" problem, where synthetic agent traffic dilutes the quality of attention sold to advertisers, generating adverse selection. To address this, I propose a Pigouvian correction mechanism: a per-delegation fee designed to internalize the externality and restore welfare. The model demonstrates that, for an individual publisher, charging AI agents toll fees for access strictly dominates both the `Blocking' and `Null (inaction)' strategies. Finally, I characterize a critical tipping point beyond which unchecked delegation triggers a collapse of the ad-funded digital market. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.22435 |
| By: | Gambato, Jacopo; Sandrini, Luca |
| Abstract: | We examine the strategic considerations and effects of product placement services in digital content aggregators, focusing in particular on Spotify's "Discovery Mode". Discovery Mode introduces bias in users' consumption bundle that content providers pay through discounted royalties, and triggers users to actively adjust to it in response. The platform's ability to manipulate consumption bundles (and adjust users' participation fee consistently) leads to promotion of the cheapest content available and degradation of users' effective consumption bundles. In equilibrium, Discovery Mode can either benefit or harm the provider of the cheapest content to stream, with the harm arising whenever Discovery Mode threatens to revert preexisting bias against said provider. Importantly, Discovery Mode always forces users to costly adjust their consumption more, unequivocally generating loss of efficiency in the market. We further highlight an indirect increase in the risk of market concentration stemming from the platform's ability to bias consumption. |
| Keywords: | platform economics, Discovery Mode, content aggregator, recommendation bias, streaming platforms |
| JEL: | D4 L1 L5 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:323931 |
| By: | Kretz, Claudio; Puppe, Clemens |
| Abstract: | We reappraise the Arrow problem by studying the aggregation of choice functions. We do so in the general framework of judgment aggregation, in which choice functions are naturally representable by specifying, for each menu A and each alternative x in A, whether x is choosable from A, or not. Our framework suggests a natural strengthening of Arrow's independence condition positing that the collective choosability of an alternative from a menu depends on the individual views on that issue, and that issue alone. Our analysis reveals that Arrovian impossibility results crucially hinge on what internal consistency requirements we impose on choice functions. While the aggregation of 'binary' choice functions, i.e. those satisfying both contraction (») and expansion (Ú) consistency, is necessarily dictatorial, possibilities in the form of oligarchic rules emerge for path-independent choice functions, that is, when the expansion property Ú is replaced by the so-called Aizerman condition. Remarkably, the Arrovian aggregation of choice functions is shown to be almost dictatorial already under property Ú alone. When giving up expansion consistency, specific quota rules become possible. |
| Keywords: | choice function, rationalizability, aggregation theory, independence, Arrow's Theorem |
| JEL: | D01 D71 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kitwps:323218 |
| By: | Dertwinkel-Kalt, Markus; Wey, Christian |
| Abstract: | We analyze the equilibrium effects of different subsidies on target goods under both perfectly competitive and monopolistic market structures. We concentrate our analysis on three particularly common forms of subsidies: (i) a per-unit subsidy, (ii) an ad valorem subsidy, and (iii) an "inversely related" subsidy, which increases as the price of the target good decreases. To evaluate the price effects of the subsidies, we rely on two criteria, an "equal-relief" criterion-which relies on a pass-through analysis-and a cost-effectiveness criterion. Overall, the ad valorem subsidy always yields the strongest price-increasing effect, whereas an inversely related subsidy leads to the lowest price increase. Consequently, the ad valorem subsidy induces the largest output expansion under perfect competition, whereas the inversely related subsidy dominates the other subsidies in a monopoly under both criteria. Those findings are consistent with several empirical facts, such as observed price differences for green target goods across European countries. |
| Keywords: | Subsidies, Target Goods, Equal-relief, Pass Through, Cost Effectiveness |
| JEL: | D04 D40 H20 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:dicedp:323232 |