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Implementation of the Socially Optimal Outcome
Author(s) -
Liao ChunHsiung,
Tauman Yair
Publication year - 2004
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2004.00412.x
Subject(s) - planner , subsidy , social planner , outcome (game theory) , microeconomics , common value auction , cournot competition , economics , profit (economics) , economic surplus , welfare , social welfare , oligopoly , computer science , market economy , law , programming language , political science
We show that a welfare maximizing planner in a Cournot oligopoly can easily implement the socially optimal outcome by offering the firms a per unit subsidy in return for upfront fees. The planner announces a subsidy and auctions it off to a limited number of firms. It is shown that if at least one firm is excluded and not subsidized, the socially optimal outcome can be achieved while the planner runs no deficit. The planner does not impose any regulation on the firms. They accept his offer willingly and voluntarily. Yet, every firm makes zero net profit and consumers extract the entire surplus.