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Dewit, Gerda and Leahy, Dermot (2011) Short-Run Policy Commitment When Investment Timing Is Endogenous: 'More Harm Than Good?'. Bulletin of Economic Research, 63 (1). pp. 82-107. ISSN 0307-3378
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Abstract
In our model, firms choose when to set cost-reducing investment and
the government, which only has short-run commitment power, sets
an output subsidy. We show that firms that delay investment without
government intervention have an incentive to invest early under policy
activism, strategically underinvesting or overinvesting to obtain larger
subsidies. The policy scheme thus creates a new, potentially more
harmful, distortion. Under oligopoly, a firm has a weaker incentive
to manipulate policy than under monopoly, which makes policy
intervention less harmful. We investigate when the government may
do better by adhering to laissez-faire than by engaging in active policy
intervention.
| Item Type: | Article |
|---|---|
| Keywords: | investment timing; laissez-faire; microeconomic policy; short-run government commitment; uncertainty; Information, Knowledge, and Uncertainty; Business Taxes and Subsidies; Fiscal Policies and Behavior of Economic Agents; Firm; |
| Academic Unit: | Faculty of Social Sciences > Economics, Finance and Accounting |
| Item ID: | 11364 |
| Identification Number: | 10.1111/j.1467-8586.2009.00332.x |
| Depositing User: | Gerda Dewit |
| Date Deposited: | 18 Oct 2019 09:28 |
| Journal or Publication Title: | Bulletin of Economic Research |
| Publisher: | Wiley |
| Refereed: | Yes |
| Related URLs: | |
| URI: | https://mural.maynoothuniversity.ie/id/eprint/11364 |
| Use Licence: | This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here |
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