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Designing a Performance Indicator to Economize on Monopoly Subsidy

Hassan Benchekroun () and Ngo Long

CIRANO Working Papers from CIRANO

Abstract: We provide a continuum of subsidy rules based on a performance indicator that induce a monopoly to choose the socially optimal production level. These subsidy rules result in a reduction of the amount of subsidy paid to the monopolist compared to the standard case where a constant subsidy rate is used. The subsidy rate depends on a state variable that reflects the monopolist's history of performance. This variable depreciates over time, therefore requiring a permanent effort of the monopolist to maintain it at an optimal level. In an example with a linear demand and no production cost, the subsidy costs of inducing efficiency are reduced by almost fifty per cent. On montre qu'il existe un continuum de règles de subvention basées sur un indice de performance qui peuvent inciter un monopoleur à produire la quantité qui maximise le bien-être social. Avec ces règles, le gouvernement paie un montant total qui est de beaucoup inférieur à celui qu'il devrait payer dans le cas standard d'un taux d'aide constante. Le taux de subvention variable dépend de la valeur d'un stock qui reflète l'histoire de performance du monopoleur.

Keywords: monopoly; intertemporal optimization; performance indicator; subsidy rules; optimisation temporelle; indice de performance; règles d'aide (search for similar items in EconPapers)
JEL-codes: C61 D42 D92 H21 L5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-pbe
Date: 2004-02-01
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http://www.cirano.qc.ca/files/publications/2004s-08.pdf

Related works:
Journal Article: A CLASS OF PERFORMANCE-BASED SUBSIDY RULES (2008) Downloads
Working Paper: A CLASS OF PERFORMANCE-BASED SUBSIDY RULES (2007) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2004s-08

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