How to regulate procurement markets for externality-generating goods: a refreshing perspective on Pigovian taxation
Louis-Gaëtan Giraudet  1@  , Laurent Lamy@
1 : Centre International de Recherche sur l'Environnement et le Développement  (CIRED)  -  Website
AgroParisTech, École des Ponts ParisTech (ENPC), Ecole des Hautes Etudes en Sciences Sociales (EHESS), CNRS : UMR8568, Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56
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We consider an externality-generating good in an imperfectly competitive market: a finite set of firms with convex production costs decide in an uncoordinated way whether to incur a visiting cost and participate in separate procurements each organised by consumers willing to buy a personalized good. We find that when the ex post first best involves mixed participation (resp. full participation), then it is implemented through a Pigovian (resp. super-Pigovian) subsidy coupled with no visit subsidies. We then analyse the ex post optimal regulation in terms of ex ante incentives and also discuss how our results extend or not to different auction rules, ad valorem instruments or with heterogeneous consumers. Our results give a large support for Pigovian
subsidies possibly coupled with a regulation on firms' entry.

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