Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems
We study a subsidies and taxes allocation problem with endogenous market response subject to a budget constraint. The central planner’s objective is to maximize the consumption of a good, and she allocates per-unit copayments and taxes to its producers. We show that the optimal policy taxes the more...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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Institute for Operations Research and the Management Sciences (INFORMS)
2021
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| Online Access: | https://hdl.handle.net/1721.1/130509 |
| _version_ | 1826215320908464128 |
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| author | Levi, Retsef Perakis, Georgia Romero, Gonzalo |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Levi, Retsef Perakis, Georgia Romero, Gonzalo |
| author_sort | Levi, Retsef |
| collection | MIT |
| description | We study a subsidies and taxes allocation problem with endogenous market response subject to a budget constraint. The central planner’s objective is to maximize the consumption of a good, and she allocates per-unit copayments and taxes to its producers. We show that the optimal policy taxes the more efficient firms and allocates larger copayments to less efficient firms, making it impractical. Therefore, we consider the simple and frequently implemented policy that allocates the same copayment to each firm, known as uniform copayments, and provide the first worst-case performance guarantees for it. Namely, we show that uniform copayments are guaranteed to induce a significant fraction of the consumption induced by the optimal policy in small markets for price-taking (Cournot) producers with affine increasing marginal costs facing any nonincreasing (linear) inverse demand function, even for different firms’ efficiency levels. Moreover, compared with the best policy that allocates copayments only, uniform copayments induce at least one-half of the optimal consumption. Furthermore, for Cournot competition with linear demand and constant marginal costs, the latter guarantee increases to more than 85% of the optimal consumption. Our results suggest that uniform copayments are surprisingly powerful in increasing the market consumption of a good. |
| first_indexed | 2024-09-23T16:23:43Z |
| format | Article |
| id | mit-1721.1/130509 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T16:23:43Z |
| publishDate | 2021 |
| publisher | Institute for Operations Research and the Management Sciences (INFORMS) |
| record_format | dspace |
| spelling | mit-1721.1/1305092022-09-29T19:46:15Z Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems Levi, Retsef Perakis, Georgia Romero, Gonzalo Sloan School of Management We study a subsidies and taxes allocation problem with endogenous market response subject to a budget constraint. The central planner’s objective is to maximize the consumption of a good, and she allocates per-unit copayments and taxes to its producers. We show that the optimal policy taxes the more efficient firms and allocates larger copayments to less efficient firms, making it impractical. Therefore, we consider the simple and frequently implemented policy that allocates the same copayment to each firm, known as uniform copayments, and provide the first worst-case performance guarantees for it. Namely, we show that uniform copayments are guaranteed to induce a significant fraction of the consumption induced by the optimal policy in small markets for price-taking (Cournot) producers with affine increasing marginal costs facing any nonincreasing (linear) inverse demand function, even for different firms’ efficiency levels. Moreover, compared with the best policy that allocates copayments only, uniform copayments induce at least one-half of the optimal consumption. Furthermore, for Cournot competition with linear demand and constant marginal costs, the latter guarantee increases to more than 85% of the optimal consumption. Our results suggest that uniform copayments are surprisingly powerful in increasing the market consumption of a good. 2021-04-22T18:47:16Z 2021-04-22T18:47:16Z 2019-03 2016-04 2021-04-15T15:43:21Z Article http://purl.org/eprint/type/JournalArticle 0030-364X 1526-5463 https://hdl.handle.net/1721.1/130509 Levi, Retsef et al. "Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems." Operations Research 67, 2 (March-April 2019): 295-358. © 2019 INFORMS en http://dx.doi.org/10.1287/OPRE.2018.1785 Operations Research Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Institute for Operations Research and the Management Sciences (INFORMS) MIT web domain |
| spellingShingle | Levi, Retsef Perakis, Georgia Romero, Gonzalo Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems |
| title | Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems |
| title_full | Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems |
| title_fullStr | Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems |
| title_full_unstemmed | Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems |
| title_short | Near-Optimality of Uniform Copayments for Subsidies and Taxes Allocation Problems |
| title_sort | near optimality of uniform copayments for subsidies and taxes allocation problems |
| url | https://hdl.handle.net/1721.1/130509 |
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