Screening with tolls and damages

Filip Tokarski

Papers from arXiv.org

Abstract: A welfare-maximizing designer allocates two kinds of goods using two screening instruments: tolls, whose costs are separable from agents' values, and damages, which are more costly to agents whose values for the goods are higher. Tolls include payments, queues, and administrative burdens; damages include quality reductions, delays, and restrictions on use. When agents differ only in their value for one kind of good, the designer can never gain from damaging it. However, when valuations for both kinds of goods are heterogeneous, damages can be useful. I provide conditions under which the optimal mechanism includes a damaged option, as well as conditions under which it does not; in the latter case, the optimal mechanism posts ``market-clearing'' tolls for each good. Intuitively, damages are more likely to be optimal when values for the two kinds of goods are positively affiliated, and less likely when high value for one good predicts low value for the other.

Date: 2025-08, Revised 2026-07
New Economics Papers: this item is included in nep-des, nep-inv and nep-mic
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