A Subsidy Inversely Related to the Product Price

Research output: Working paper

Abstract

This paper considers a new subsidy scheme for encouraging the purchase of target products, in which the subsidy payment is inversely related to the product price. The scheme makes the demand faced by producers more elastic, thereby reducing their power to raise prices and increasing subsidy pass-through to consumers. Relative to the commonly-used specific or ad valorem subsidy, it induces larger sales with the same government budget (up to 50% more sales than the specific subsidy, according to simulations based on the U.S. electric vehicle market) and allows the regulator to flexibly adjust the incidence on producers.
Original languageEnglish
Pages1-32
Number of pages32
Publication statusPublished - 2019

Fingerprint

Subsidies
Government budget
Payment
Electric vehicle
Pass-through
Simulation
Purchase

Keywords

  • subsidy design
  • subsidy efficiency
  • subsidy incidence
  • Bertrand competition
  • supermodular games

Cite this

A Subsidy Inversely Related to the Product Price. / Kiso, Takahiko.

2019. p. 1-32.

Research output: Working paper

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