Governance of Social Welfare in Networked Markets

TL;DR

This paper explores how a government can optimize social welfare in a networked market system by strategically allocating resources, considering network structure, and proposing a heuristic algorithm validated on real data.

Contribution

It introduces a network-structure-dependent approach for government resource allocation in markets and develops a heuristic algorithm for maximizing social welfare.

Findings

The network structure significantly influences optimal resource allocation.

The proposed heuristic outperforms other methods in experiments.

Structural features can guide effective policy design.

Abstract

This paper aims to investigate how a central authority (e.g. a government) can increase social welfare in a network of markets and firms. In these networks, modeled using a bipartite graph, firms compete with each other \textit{\`a la} Cournot. Each firm can supply homogeneous goods in markets which it has access to. The central authority may take different policies for its aim. In this paper, we assume that the government has a budget by which it can supply some goods and inject them into various markets. We discuss how the central authority can best allocate its budget for the distribution of goods to maximize social welfare. We show that the solution is highly dependent on the structure of the network. Then, using the network's structural features, we present a heuristic algorithm for our target problem. Finally, we compare the performance of our algorithm with other heuristics with experimentation on real datasets.