Optimal government scrappage subsidies in the presence of strategic consumers |
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| Authors: | Hosain Zaman Georges Zaccour |
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| Institution: | 1. GERAD, HEC Montréal, Canada;2. Chair in Game Theory and Management, GERAD, HEC Montréal, Canada;1. Chair of Business Analytics and Management Science, Bundeswehr University Munich (UniBw), Werner-Heisenberg-Weg 39, D-85577 Neubiberg, Germany;2. Chair of Analytics & Optimization, University of Augsburg, Universitätsstraße 16, D-86159 Augsburg, Germany;1. School of Software, Liaoning Technical University, Fuxin, China;2. College of Business and Economics, UAE University, Al Ain, United Arab Emirates;1. Department of Economics, Deakin Business School, Burwood Campus, 221 Burwood Hwy, Burwood, 3125 VIC, Australia;2. Department of Economics, Monash Business School, Clayton Campus, Wellington Road, Clayton, 3800 VIC, Australia |
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| Abstract: | Many countries have introduced vehicle scrappage programs to motivate consumers to replace their old cars earlier. Since these programs are generally offered over a given period of time, policy makers need to plan for inter-temporal subsidies. Considering a two-period game between strategic consumers and the government, we determine the optimal scrappage subsidy levels. Our results demonstrate that the subsidy level in the second period is higher than in the first, allowing the government to discriminate on price (or subsidy) between consumers with different valuations. In addition, we show that subsidy levels increase with the government’s targeted replacement level. However, when the government target level changes from intermediate to high, the first-period subsidy drops while the second-period subsidy remains unchanged. |
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