A Subsidy Inversely Related to the Product Price

Research output: Working paperDiscussion paper

39 Downloads (Pure)


This paper considers a new subsidy scheme for supporting 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 policy maker to flexibly adjust the incidence on producers.
Original languageEnglish
Place of PublicationAberdeen
PublisherUniversity of Aberdeen
Number of pages38
Publication statusPublished - Dec 2019

Publication series

NameDiscussion Papers in Economics and Finance
ISSN (Electronic)0143-4543


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

Fingerprint Dive into the research topics of 'A Subsidy Inversely Related to the Product Price'. Together they form a unique fingerprint.

Cite this