Short‐Run Policy Commitment When Investment Timing Is Endogenous: ‘More Harm Than Good?’
AbstractWe introduce endogenous leadership in a game between government and firms, in which the government has short-run commitment power only and firms choose when to invest. We show that firms that delay investment in the absence of government intervention have an incentive to invest early and strategically under policy activism. Then, even though a policy scheme succeeds in correcting an existing distortion targeted by the government, it can create a new and potentially more harmful one. We investigate when the government may do better by adhering to laissez-faire than by engaging in active policy intervention.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Bulletin of Economic Research.
Volume (Year): 63 (2011)
Issue (Month): 1 (01)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0307-3378
Other versions of this item:
- Gerda Dewit & Dermot Leahy, 2004. "Short-run policy commitment when investment timing is endogenous: "More harm than good?"," Economics, Finance and Accounting Department Working Paper Series n1400904, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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