Deregulation with consensus (Q883102)

In this paper the authors analyze the problem of eliminating an inefficient regulation that keeps prices artificially high while obtaining consensus from all agents involved. The planner designs an optimal mechanism to maximize a weighted sum of incumbent finins profits and consumer surplus. The firsm have different cost functions and only the statistical distribution of costs is known to the planner. Agents are infinitely lived and the planner can choose time paths for subsidies. The authors consider a mechanism with balanced budget, so that transfers must be financed by taxes on the consumers. In order to simplify the discussion they assume that the inefficient regulation to be eliminated is a protectionist tariff, although is should be clear that the results apply in general to all inefficient regulations.