Personalized Incentives with Constrained Regulator’s Budget

Lucas Javaudin, Andrea Araldo and André de Palma

No 2023-15, Thema Working Papers from THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS

Abstract: We consider a regulator driving individual choices towards increasing social welfare by providing personal incentives. We formalize and solve this problem by maximizing social welfare under a budget constraint. The personalized incentives depend on the alternatives available to each individual and on her preferences. A polynomial time approximation algorithm computes a policy within few seconds. We analytically prove that it is boundedly close to the optimum. We efficiently calculate the Maximum Social Welfare Curve to achieve for a range of incentive budgets. This curve provides the right incentive budget to invest. We extend our formulation to enforcement, taxation and non-personalized-incentive policies. We analytically show that our personalized-incentive policy is also optimal within this class of policies and construct close-to-optimal enforcement and proportional tax-subsidy policies. We then compare analytically and numerically our policy with other state-of-the-art policies. Finally, we simulate a large-scale application to mode choice to reduce CO2 emissions.

Keywords: Personalized incentives; Knapsack problem; Tax policy; CO2 emissions; Modal shift (search for similar items in EconPapers)
JEL-codes: C61 H2 Q58 R41 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-env
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Related works:
Working Paper: Personalised incentives with constrained regulator's budget (2023)
Working Paper: Personalised incentives with constrained regulator's budget (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2023-15

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