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Time-inconsistent Output Subsidy/Tax Policies in Free-entry Mixed Markets

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  • Chen, Jiaqi
  • Lee, Sang-ho
  • Muminov, Timur K.

Abstract

This study considers time-inconsistent output subsidy/tax policies in free-entry mixed markets under different competition modes. In a committed regime where the subsidy is determined before entry, the optimal rate is zero in either Cournot or Stackelberg game with private leadership, while it is negative in Stackelberg game with public leadership. In a non-committed regime where the subsidy is determined after entry, the optimal rate is always positive. We also show that private leadership is the best for social welfare regardless of the timing of subsidy policies, but public leadership might be equilibrium if the timing of entry decisions is endogenous.

Suggested Citation

  • Chen, Jiaqi & Lee, Sang-ho & Muminov, Timur K., 2019. "Time-inconsistent Output Subsidy/Tax Policies in Free-entry Mixed Markets," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 60(1), pages 61-77, June.
  • Handle: RePEc:hit:hitjec:v:60:y:2019:i:1:p:61-77
    DOI: 10.15057/30362
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    References listed on IDEAS

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    More about this item

    Keywords

    free-entry mixed market; committed policy; non-committed policy; output subsidy;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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