MICRO/THEORY: Robust interventions in Markets; Professor Andrea Galeotti (London Business School)

Abstract

We explore tax and subsidy interventions in markets. Firms have market power and the market outcome is inefficient. Under perfect information of the strategic interaction across firms (which boils down to knowledge of the Slutsky matrix, a policymaker can exploit it to improve welfare outcomes. Our main contribution is to characterise how welfare outcomes can be improved robustly when the policymaker has very little information on the underlying Slutsky matrix.