The Welfare Effect of a Consumer Subsidy with Price Ceilings: The Case of Chinese Cell Phones / Ying Fan, Ge Zhang.

Format:

Book

Author/Creator:

Fan, Ying (Associate Professor)

Contributor:

National Bureau of Economic Research.

Zhang, Ge.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28659.

NBER working paper series no. w28659

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

Subsidies to consumers may cause firms to charge higher prices, which offsets consumer benefits from subsidies. We study a subsidy program design that mitigates such price increases by making products' eligibility for a subsidy dependent on firms' commitment to price ceilings. To quantify the importance of such competition for eligibility, we develop a structural model and an estimation procedure that accommodate binding pricing constraints. We find that competition for eligibility mitigates the price increases arising from the subsidy and even leads to a reduction in prices for some products. It improves consumer and total surpluses while limiting government subsidy payments.

Notes:

Print version record

April 2021.