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Personalized Incentives with Constrained Regulator’s Budget

Author

Listed:
  • Lucas Javaudin
  • Andrea Araldo
  • André de Palma

    (Université de Cergy-Pontoise, THEMA)

Abstract

We consider a regulator driving individual choices towards increasing social welfare by providing personal incentives. We formalize and solve this problem by maximizing social welfare under a budget constraint. The personalized incentives depend on the alternatives available to each individual and on her preferences. A polynomial time approximation algorithm computes a policy within few seconds. We analytically prove that it is boundedly close to the optimum. We efficiently calculate the Maximum Social Welfare Curve to achieve for a range of incentive budgets. This curve provides the right incentive budget to invest. We extend our formulation to enforcement, taxation and non-personalized-incentive policies. We analytically show that our personalized-incentive policy is also optimal within this class of policies and construct close-to-optimal enforcement and proportional tax-subsidy policies. We then compare analytically and numerically our policy with other state-of-the-art policies. Finally, we simulate a large-scale application to mode choice to reduce CO2 emissions.

Suggested Citation

  • Lucas Javaudin & Andrea Araldo & André de Palma, 2023. "Personalized Incentives with Constrained Regulator’s Budget," THEMA Working Papers 2023-15, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  • Handle: RePEc:ema:worpap:2023-15
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    References listed on IDEAS

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    More about this item

    Keywords

    Personalized incentives; Knapsack problem; Tax policy; CO2 emissions; Modal shift;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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