A Subsidy That Is Inversely Related to the Product Price

Takahiko Kiso

doi:10.1093/ej/ueac002

A Subsidy That Is Inversely Related to the Product Price

Takahiko Kiso^* (Corresponding Author)

^*Corresponding author for this work

Economics

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Abstract

This study considers a new subsidy design to support the purchase or production of target products. Under the proposed design, subsidy payments are inversely related to product prices. Compared to ‘flat’ subsidies, this design reduces producers’ market power and the subsidy benefits passed on to them, improving the cost-effectiveness of government spending (by up to 50% according to simulations based on an actual subsidy programme). Additionally, this subsidy’s cost-effectiveness and incidence can be adjusted flexibly by changing the policy parameters. Finally, the subsidy design can be modified to provide larger payments to higher-quality products, thereby offsetting disincentives for quality improvement.

Original language	English
Pages (from-to)	2173–2206
Number of pages	34
Journal	Economic Journal
Volume	132
Issue number	646
Early online date	10 Jan 2022
DOIs	https://doi.org/10.1093/ej/ueac002
Publication status	Published - 1 Aug 2022

Bibliographical note

Open Access under the OUP Agreement

Keywords

IR subsidy
cost-effectiveness
incidence
imperfect competition
supermodular games

Access to Document

10.1093/ej/ueac002Licence: CC BY

Kiso_etal_TEJ_A_Subsidy_That_VoR
© The Author(s) 2022. Published by Oxford University Press on behalf of Royal Economic Society. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
Final published version, 534 KBLicence: CC BY

Replication package for: "A Subsidy That Is Inversely Related to the Product Price"
Kiso, T. (Creator), Zenodo, 2021
DOI: 10.5281/zenodo.5576685, https://zenodo.org/api/records/5576685
Dataset

Cite this

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title = "A Subsidy That Is Inversely Related to the Product Price",

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A Subsidy That Is Inversely Related to the Product Price

Abstract

Bibliographical note

Keywords

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Replication package for: "A Subsidy That Is Inversely Related to the Product Price"

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