Implementation of the socially optimal outcome

Chun Hsiung Liao, Yair Tauman

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)618-625
Number of pages8
JournalManchester School
Issue number5
Publication statusPublished - 2004 Sept

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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