Coordinating Pricing and Supply of Public Interest Goods Using Government Rebates and Subsidies


This paper presents a stylized framework for analyzing the design of presidency incentives for public interest goods (product with externalities, such as electric vehicles.) We tend to extend the newsvendor model with pricing to account for the consumption externality inherent in public interest goods and analyze the governments ability to coordinate their pricing and provide through the use of rebates and subsidies. Our model allows for product with both positive and negative externalities, and considers three government intervention mechanisms: the joint mechanism that uses both subsidies and rebates, and two simplified mechanisms that use only rebates or solely subsidies. The goal of the intervention is to coordinate the system so as to attain the maximal welfare, which in our model consists of the companies profit, client surplus, and externality profit web the government value. We realize that the joint mechanism coordinates the system, however leads to a negative subsidy (i.e., a tax) unless the externality is very tiny. The simplified mechanisms mostly result in positive rebates and subsidies, however typically don't coordinate the system. We apply our model to the case of Chevy Volt, a number one electrical vehicle in North America manufactured by General Motors. We have a tendency to estimate all model parameters from industry data and present a comprehensive numerical study that compares the current government incentives with those advised by our model. We have a tendency to realize that whereas the present incentives are structurally suboptimal, the resultant welfare loss underneath the rebate-solely mechanism is very tiny, while below the subsidy-solely mechanism it's quite massive.

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