Social Planner Research Articles

Adaptive Social Planner to Accompany People in Real-Life Dynamic Environments

Adaptive Social Planner to Accompany People in Real-Life Dynamic Environments

Collusion with capacity constraints under a sales maximization rationing rule

In the repeated Bertrand duopoly with capacity constraints, we introduce a sales maximization rationing rule, instead of a standard rationing rule, Efficient rule (E rule). Under our new rule, when the demand of a firm with a lower price exceeds its capacity, the consumers who are willing to buy at that price are rationed to that firm according to their unwillingness to buy. We find that the maximum one-shot total payoff under our rule is not less than that under E rule at any capacities; it is achieved by an asymmetric price pair rather than a symmetric monopoly price pair and it is strictly greater than that under E rule unless each firm’s capacity is too large. Under the one-shot total payoff maximization, total surplus under our rule is also equal to or greater than that under E rule at any capacities. Hence, our rule is also appealing to the social planner, and it is implementable due to information technology which collects information about the consumers’ willingness to pay. In the repeated game, patient firms can achieve the total payoff maximization by an equilibrium under our rule. Moreover, a range of discount factors within which the total payoff maximization can be sustained under our rule is wider than that under E rule at some capacities.

Incentives for investments in defensive technology: An economic analysis of the Safety Act

Civilian targets of terrorist or criminal attacks (e.g., sport stadiums, chemical or nuclear industry; infrastructure such as ports or pipelines) are often owned by the private agents who choose how to guard against potential attacks. This creates an important externality problem, as some of the benefits of better protection accrue to other private agents who would suffer from an attack. We analyze a model in which a social planner wants to provide incentives for the deployment of defensive technologies. Our results show that some features of the Safety Act, enacted after the 2001 terror attacks, are probably counterproductive.

Boosting taxes for boasting about houses? Status concerns in the housing market

In this paper we investigate the implications for housing taxation when households have status concerns for residential housing. For this purpose we introduce a residential housing sector and status concerns for housing into a neoclassical model with heterogeneous agents. First, finding that status concerns exert a negative externality, we calculate a progressive Pigovian tax schedule that corrects for the externality. Implementing the tax schedule is associated with a moderate aggregate welfare gain, but has a sizable and diverse impact on household groups’ welfare. Second, we find that when the utilitarian social planner is constrained to housing taxes, Pigovian taxation is not constraint efficient. We show that the welfare maximizing tax of the constrained optimum is always higher than the Pigovian tax, and we analyze the mechanism behind this finding. Our results have strong implications for the optimal taxation of residential housing.

Don’t stop me now: Incremental capacity growth under subsidy termination risk

Once a subsidy scheme is close to reaching its goal or loses political support, it may be terminated. An important question for policy makers is how to minimize the negative impact of the risk of subsidy termination on industrial investment. We assume the social planner aims to increase capacity and welfare and uses a subsidy, which has an uncertain lifetime, for the purpose. We examine a monopolist supplying an uncertain demand, faced with the option to expand capacity by irreversibly investing in small increments. We find that the firm installs capacity expansions sooner and, consequently, installs a larger capacity than a firm without a subsidy. A firm’s total investment during the subsidy’s lifetime increases with both the subsidy size and the likelihood of subsidy withdrawal. However, this happens at the cost of less investment directly after the subsidy has been retracted. The optimal subsidy size strongly depends on the point in time at which the social planner aims to maximize the welfare — the further into the future, the larger the welfare optimal subsidy. Furthermore, the welfare optimal subsidy size strongly depends on the social planner’s discretion over adjustments to the subsidy size.

Precautionary Social Planning

It is a truism of neoclassical economics that a sufficiently high savings rate will be bad if it is dynamically inefficient. Here we consider a Solow model in which households follow a savings rate dictated by a social planner. Ideally, the social planner would instruct households to save at the Golden Rule savings rate that maximizes consumption per capita, but this advice needs to be adjusted when the social planner has imperfect control over how much households actually save. Analogous to what happens with precautionary saving at the household level, in this case, the social planner will maximize social welfare by targeting a savings rate higher than the Golden Rule. Precautionary social planning then yields a dynamically inefficient allocation, albeit with greater stability of consumption, which is often a stated priority of social planners.

Optimal epidemic control in equilibrium with imperfect testing and enforcement

We analyze equilibrium behavior and optimal policy within a Susceptible-Infected-Recovered epidemic model augmented with potentially undiagnosed agents who infer their health status and a social planner with imperfect enforcement of social distancing. We define and prove the existence of a perfect Bayesian Markov competitive equilibrium and contrast it with the efficient allocation subject to the same informational constraints. We identify two externalities, static (individual actions affect current risk of infection) and dynamic (individual actions affect future disease prevalence), and study how they are affected by limitations on testing and enforcement. We prove that a planner with imperfect enforcement will always wish to curtail activity, but that its incentives to do so vanish as testing becomes perfect. When a vaccine arrives far into the future, the planner with perfect enforcement may encourage activity before herd immunity. We find that lockdown policies have modest welfare gains, whereas quarantine policies are effective even with imperfect testing.

Distance-Based Service Priority: An Innovative Mechanism to Increase System Throughput and Social Welfare

Problem definition: The main goal of many nonprofit or nongovernmental organizations is to increase the number of customers who receive service (i.e., service coverage) and social welfare. However, the limited number of employees, volunteers, and service locations results in long service wait. In addition, getting customers living in remote areas to receive services by traveling long distances is difficult. We propose an innovative distance-based service priority policy that would reduce the service waiting time for customers who must travel farther for the service by giving them higher service priority, thereby providing them with a new incentive to seek service. Methodology/results: Using a game-theoretic queueing model, we show that the proposed policy can significantly attract more customers to a service. The increase can be up to 50% compared with the ordinary first-come-first-served service discipline. The policy can also achieve higher social welfare, however, that may come at the cost of reduced customer welfare. We therefore propose a possible remedy for a social planner to coordinate welfare under such circumstance. It ensures all stakeholders, including the service provider, customers, and society, can benefit from the policy at the same time. Finally, we compare our distance-based service priority policy with two existing strategies from the literature—namely, the price discrimination strategy and the probabilistic priority strategy. Managerial implications: Our proposed policy can play a pivotal role in a nonprofit service provider’s mission to increase service coverage and social welfare, especially when customers’ travel costs to obtain service are significant. Furthermore, our policy may create fewer implementation and fairness concerns compared with related strategies. Funding: Z. Wang acknowledges financial support from the National Natural Science Foundation of China [Grants 72001118 and 72132007], and L. Fang acknowledges financial support from the National Natural Science Foundation of China [Grant 72271129]. Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2022.1157 .

A growth model with endogenous technological revolutions and cycles

We propose a new approach to deal with continuous time dynamic model with discontinuity, by which we incorporate gradual innovations and technological leaps, as well as endogenous cycles and long-run growth into one framework. We show that the optimal or equilibrium growth path is a cyclic growth path (CGP) and we develop the mathematical technique to prove the existence and uniqueness of the solution. We provide two basic setups to include the technological leaps in the R&D sector or goods production sector respectively. The growth paths under these two setups show different cyclic features and abundant economic dynamics. Our approach can be easily utilized to evaluate the optimality of the timing of the technological revolution. In the decentralized economy, the technological breakthrough is exogenous to families and always happens too late. The social planner’s problem clarifies two fundamental effects on the optimal growth path, i.e., the “dividend effect” and the “swot-up effect”, induced by discontinuous technological change. Our framework can also serve as a workhorse to address dynamic economic problems with discontinuity.

On the Design of Public Debate in Social Networks

How to Avoid Polarization in Social Networks In order to facilitate social interactions and the design of deliberative and efficient institutions, a social planner should ensure that diverse opinions can be sustained and debated and ensuring social cohesion. Grabisch et al. provide a theory of the efficient design of public debate. They develop a model of the coevolution of opinions and social relations that allow them to frame this problem in a formal setting. This model of opinion dynamics accounts for the persistence of heterogeneous opinions in society (“strong diversity”) and the dynamic interactions between opinions and social connections. The social planner faces a trade-off between fostering the convergence of opinions in society and increasing the risk of polarization and instability. To resolve this trade-off, the social planner must account for both structural and behavioral characteristics: how fragile is the social network and to what extent individuals tolerate disagreement with their peers.

Government Welfare Policy Under a Skilled-Biased Technological Change

In a world where machines replace unskilled work, an active labor market policy—represented by the combination of an optimal Earned Income Tax Credit (EITC) and income maintenance for the unemployed—provides incentives to increase participation in the labor market and depresses wages for unskilled employees. In this paper, this policy is tested against the alternative of allowing unskilled workers to receive a means-tested basic income (MTBI), as recently adopted by Spain. For a liberal social planner (i.e., includes consumption and leisure in individual utility), the MTBI dominates the active labor market policy. For a conservative social planner (i.e., evaluates social welfare based on individual utility from consumption), the active labor market policy dominates the MTBI. The potential dynamic effects of active labor policy on labor supply were considered in a simulation using updated empirical estimates; it shows that this policy becomes preferable for both types of the social planner.

Strategic access in a Green IoT(Internet of Things) system with an unreliable server

The present research aims to study the strategic behaviour of users in an Internet of Things(IoT) system that is impeded by an unreliable server. In the system, an IoT device is equipped with an energy harvesting unit. The IoT system under study is employed as a Markovian retrial queueing system that is used in a single server, subject to active failures. The failed server is repaired immediately, while the user who was served before the system’s breakdown event waits in the server until the server is repaired. The generating function approach is used to identify important system performance metrics. Moreover, queueing theory concepts are incorporated into game theory for the analysis of the users’ strategies. The users in the IoT system, act to maximize their expected benefit without being perturbed by other users in the system and determine their equilibrium joining strategies. Furthermore, taking into account social welfare factors, the IoT device acts as a social planner, and as a consequence, socially optimal joining strategies are also analysed. Finally, the analytical findings are validated with numerical examples.

The Social Planning Problem with Costly Information Processing: Towards Understanding Production Decisions in Centralized Economies

It has long been argued that market economies feature an inherent advantage over centralized economies because they are subject to fewer information processing needs. However, very little work has investigated the role of these needs in explaining differences in optimal production decisions between centralized and market economies. This paper uses a rational inattention approach to study the decision problem of a social planner who faces uncertainty about households' preferences and can reduce this uncertainty by allocating scarce resources to processing information. The model shows that costly information processing has important implications for optimal production decisions, including for the trade‐off between consumption and leisure, the optimal range of different goods produced, and the role of correlated consumer preferences. Overall, the results suggest that differences in empirical production decisions between socialist and capitalist countries may be driven by the different information needs and associated costs of processing information inherent to each economic system, rather than by differences in ideology or political preferences.

Optimal interventions in networks during a pandemic

We develop a model of optimal lockdown policy for a social planner who balances population health with short-term wealth accumulation. The unique solution depends on tolerable infection incidence and social network structure. We then use unique data on nursing home networks in the US to calibrate the model and quantify state-level preference for prioritizing health over wealth. We also empirically validate simulation results derived from comparative statics analyses. Our findings suggest that policies that tolerate more virus spread (laissez-faire) increase state GDP growth and COVID-19 deaths in nursing homes. The detrimental effects of laissez-faire policies are more potent for nursing homes that are more peripheral in networks, nursing homes in poorer counties, and nursing homes that operate on a for-profit basis. We also find that US states with Republican governors have a higher tolerable incidence level, but these policies tend to converge with a high death count.

Consumer search with anticipated regret

Uncertainty before purchase often gives rise to postpurchase emotions that consumers might anticipate when making purchase decisions. Our study investigates how consumers' anticipated postpurchase regret affects their optimal search behavior and how this affects firms' price and assortment competition. The key tension considered in this study is that consumers balance between saving the cost of product evaluation by searching less and alleviating the potential postpurchase regret on their purchase by searching more. We use a classical sequential search framework to examine this key tension. Our results show that anticipated regret encourages more intense search across competitive alternatives, leading to an intensified price competition when search depth is exogenous (searching a fixed number of attributes) or when search depth is endogenous but full‐depth search (inspecting all attributes) emerges (with high regret intensity). However, when search depth is endogenous but partial‐depth search (inspecting a subset of attributes) emerges (with low regret intensity), the blessing effect of anticipated regret on softening firms' price competition begins to emerge. In addition, anticipated regret can achieve a “win‐win‐win” situation for consumers, firms, and the social planner. Moreover, multiproduct firms use different competitive devices with different levels of regret intensity: When regret intensity is low (high), firms focus on assortment (price) competition to retain consumers. The relevant managerial implications are discussed.

Negotiating over payments for wetland ecosystem services

AbstractThis paper proposes and examines the economic efficiency of novel payment schemes for the provision of wetland ecosystem services. By definition, payments for ecosystem services typically involve voluntary transactions between the beneficiaries and providers of ecosystem services. We develop a theoretical model that addresses the role that a third party—such as a social planner or government agency, acting in the interest of society—can play to ensure the optimal provision of ecosystem services. We consider different regulatory frameworks combining payments for ecosystem services with a subsidy that the third party grants to the beneficiaries or providers of ecosystem services. We compare the outcomes of the different policy mixes characterized by different levels of involvement of the third party. Of particular interest is the comparison between the outcomes of payments for ecosystem services subsidy arrangements in which the third party plays decentralized and centralized roles. Our results show, among other things, that the third party is indifferent between a negotiated payment for ecosystem services combined with a subsidy scheme and the constrained first‐best payments for ecosystem services subsidy scheme, in the presence of transaction and administrative costs. However, beneficiaries and providers may have conflicting preferences over the two payments for ecosystem services schemes.

Edge-Weighted Online Windowed Matching

Consider a matching problem, in which agents arrive to a marketplace over time and leave after some time periods. Agents can only be matched while present in the marketplace. Each pair of agents can yield a different match value, and a social planner seeks to maximize the total value from matches over a finite time horizon. First we study the case in which vertices arrive in an adversarial order. For the case when agents depart in the order of arrival, we provide a randomized [Formula: see text]-competitive algorithm. When departure times are drawn independently from a distribution with nondecreasing hazard rate, we establish a [Formula: see text]-competitive algorithm. When the arrival order is chosen uniformly at random and agents leave after a fixed number of time periods, a batching algorithm, which computes a maximum-weighted matching periodically, is shown to be 0.279-competitive.

Relicensing scheme selection in closed-loop supply chains with differentiated new and remanufactured products

Secondary markets have gradually been attracted widespread attention from various industries, in which firms recycle or remanufacture used products to obtain the product value remaining after consumers’ consumption. A key issue in the secondary market is remanufacturing patent licensing, which significantly affects the remanufacturing operational efficiency and firms’ profitability. In a closed-loop supply chain (CLSC), certain original equipment manufacturers (OEMs) often authorize the downstream retailer or an independent third-party to collect and remanufacture products by charging a relicensing fee. This study considers two relicensing schemes: the OEM licenses the retailer to remanufacture (Model R), and the OEM licenses the third-party to remanufacture (Model TP). By developing game-theoretical CLSC models that consists of the OEM, retailer, and third-party, we compare equilibrium quantities and prices, profits, consumer surplus, environmental performance, and social welfare under the two relicensing schemes. The results show that the OEM earns a higher profit under the Model TP than that in Model R. In addition, even though Model R yields higher environmental performance, consumers are better off in Model TP. From the supply chain and social planner’s perspectives, when consumers’ willingness-to-pay for the remanufactured product is sufficiently high, Model R outperforms Model TP. Finally, we extend the basic model by allowing the case of additional retailer competition and the coexistence of authorized and unauthorized remanufacturers and prove that the main results are qualitatively robust to these extensions.

Tradable mobility permits in a monocentric city with pre-existing labor taxation: A general equilibrium perspective

This paper studies tradable mobility permit schemes in a monocentric city with a distorting labor tax, considering spatially differentiated allocations of permits to households. Numerical results show that an allocation of permits proportional to labor supply reaches about 99.9% of first-best welfare, clearly outperforming a scheme with lump-sum allocation of permits, and being more efficient than the second-best tax for levels of the labor tax of 20% or higher. This is due to the welfare gains of incentivizing labor supply, which has an effect similar to the revenue recycling effect of conventional road pricing, and that can be optimized by the social planner by exploiting spatial differences. Other alternatives, such as an allocation of permits proportional to distance from the CBD and a cordon-based scheme do not reach those high levels of efficiency. Our results provide insights into the efficiency of tradable driving permit schemes as an alternative to road pricing to tackle present externalities, showing that a spatial differentiation of the allocation of permits can be a powerful instrument in the hands of the regulator.

THE IMPACT OF PUBLIC POLICY ON THE MOTIVATION AND ANXIETY SENSITIVITY OF STUDYING ABROAD: A REVIEW OF THE PROCESS OF CHINA'S CHOICE OF STUDENTS TO STUDY IN THE SOVIET UNION IN THE 1950S

THE IMPACT OF PUBLIC POLICY ON THE MOTIVATION AND ANXIETY SENSITIVITY OF STUDYING ABROAD: A REVIEW OF THE PROCESS OF CHINA'S CHOICE OF STUDENTS TO STUDY IN THE SOVIET UNION IN THE 1950S