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A CLASS OF PERFORMANCE‐BASED SUBSIDY RULES*

Hassan Benchekroun () and Ngo Long

The Japanese Economic Review, 2008, vol. 59, issue 4, 381-400

Abstract: We consider a benchmark static incentive scheme, i.e. a per unit subsidy, that induces a monopoly to produce a target output level. We show that the same output level can be achieved by a continuum of dynamic subsidy rules based on a performance indicator. The rules require only local information. The present value of the subsidies paid is smaller than the amount paid under the static subsidy. Each of the dynamic subsidy rules results at each moment in a lower per unit subsidy than the static subsidy. The subsidy rate depends on a state variable that reflects the monopolist's performance history.

Date: 2008
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https://doi.org/10.1111/j.1468-5876.2008.00440.x

Related works:
Working Paper: A CLASS OF PERFORMANCE-BASED SUBSIDY RULES (2007) Downloads
Working Paper: Designing a Performance Indicator to Economize on Monopoly Subsidy (2004) Downloads
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