There is a free lunch after all

Chun Hsiung Liao, Yair Tauman

Research output: Contribution to journalArticlepeer-review


This paper shows that there is a simple way for a financial institution to make a positive profit, free of risk, under imperfect competition. The institution plays a very limited role. It offers firms in the industry a per-unit subsidy in return for a predetermined upfront fee. It neither produces its own output nor sells the products of the subsidized firms. In equilibrium, firms accept the offer although they end up with lower net profits. The institution makes a positive profit as it collects upfront fees which exceed its subsidy payments. The resulting outcome in a Cournot industry is welfare improvement.

Original languageEnglish
Pages (from-to)223-233
Number of pages11
JournalMathematical social sciences
Issue number2
Publication statusPublished - 2004 Sept

All Science Journal Classification (ASJC) codes

  • Sociology and Political Science
  • General Social Sciences
  • General Psychology
  • Statistics, Probability and Uncertainty


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