Advanced Search
MyIDEAS: Login to save this article or follow this journal

Uncertain regulatory timing and market dynamics

Contents:

Author Info

  • Wilson, Nathan E.

Abstract

Using a dynamic model of capacity accumulation, I examine the relationship between uncertainty about the timing of a new Pigouvian tax and oligopolistic competition. I find that for some market structures uncertainty about the timing of the regulatory change leads firms to increase investment. These results stem from the nature of the uncertainty and its interaction with firms' strategic incentive to engage in capacity races. They dramatize the importance of accounting for initial conditions when forecasting firms' reactions to anticipated regulatory changes. In addition, I find that more protracted uncertainty leads to greater welfare costs.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0167718711000658
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 30 (2012)
Issue (Month): 1 ()
Pages: 102-115

as in new window
Handle: RePEc:eee:indorg:v:30:y:2012:i:1:p:102-115

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Dynamic stochastic games; Regulatory uncertainty; Pigouvian tax; Capacity investment; Strategic interaction;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000. " What Do We Know about Investment under Uncertainty?," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 119-53, April.
  2. Ariel Pakes, 2000. "A Framework for Applied Dynamic Analysis in I.O," NBER Working Papers 8024, National Bureau of Economic Research, Inc.
  3. Murto, Pauli & Nasakkala, Erkka & Keppo, Jussi, 2004. "Timing of investments in oligopoly under uncertainty: A framework for numerical analysis," European Journal of Operational Research, Elsevier, vol. 157(2), pages 486-500, September.
  4. Ron N. Borkovsky & Ulrich Doraszelski & Yaroslav Kryukov, 2009. "A Dynamic Quality Ladder Model with Entry and Exit: Exploring the Equilibrium Correspondence Using the Homotopy Method," GSIA Working Papers 2010-E2, Carnegie Mellon University, Tepper School of Business.
  5. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
  6. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
  7. Witold J. Henisz & Bennet A. Zelner, 2001. "The Institutional Environment for Telecommunications Investment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(1), pages 123-147, 03.
  8. Kevin A. Hassett & Gilbert E. Metcalf, 1998. "Investment With Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Discussion Papers Series, Department of Economics, Tufts University 9823, Department of Economics, Tufts University.
  9. Michael D. Whinston, 1988. "Exit with Multiplant Firms," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 568-588, Winter.
  10. Harris, Christopher & Vickers, John, 1987. "Racing with Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 54(1), pages 1-21, January.
  11. Ronald L. Goettler & Christine A. Parlour & Uday Rajan, 2005. "Equilibrium in a Dynamic Limit Order Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2149-2192, October.
  12. David Besanko & Ulrich Doraszelski, 2004. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 23-49, Spring.
  13. Jaap H. Abbring & Jeffrey R. Campbell, 2006. "Last-In First-Out Oligopoly Dynamics," Tinbergen Institute Discussion Papers 06-110/3, Tinbergen Institute, revised 22 Jan 2009.
  14. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
  15. Doraszelski, Ulrich & Satterthwaite, Mark, 2007. "Computable Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity," CEPR Discussion Papers 6212, C.E.P.R. Discussion Papers.
  16. Wayne B Gray & Ronald J Shadbegian, 1997. "Environmental Regulation, Investment Timing, and Technology Choice," Working Papers 97-9, Center for Economic Studies, U.S. Census Bureau.
  17. Pawlina, Grzegorz & Kort, Peter M., 2005. "Investment under uncertainty and policy change," Journal of Economic Dynamics and Control, Elsevier, vol. 29(7), pages 1193-1209, July.
  18. Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994. "Capacity Precommitment as a Barrier to Entry: A Bertrand- Engeworth Approach," Papers 9483, Tilburg - Center for Economic Research.
  19. Mason, Robin & Weeds, Helen, 2010. "Investment, uncertainty and pre-emption," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 278-287, May.
  20. Besanko, David & Doraszelski, Ulrich & Lu, Lauren Xiaoyuan & Satterthwaite, Mark, 2010. "On the role of demand and strategic uncertainty in capacity investment and disinvestment dynamics," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 383-389, July.
  21. Jiawei Chen, 2006. "The Effects of Mergers with Dynamic Capacity Accumulation," Working Papers 060701, University of California-Irvine, Department of Economics.
  22. Peter S. Reinelt & David W. Keith, 2007. "Carbon Capture Retrofits and the Cost of Regulatory Uncertainty," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 101-128.
  23. Pakes, Ariel & McGuire, Paul, 2001. "Stochastic Algorithms, Symmetric Markov Perfect Equilibrium, and the 'Curse' of Dimensionality," Econometrica, Econometric Society, vol. 69(5), pages 1261-81, September.
  24. Yang, Ming & Blyth, William & Bradley, Richard & Bunn, Derek & Clarke, Charlie & Wilson, Tom, 2008. "Evaluating the power investment options with uncertainty in climate policy," Energy Economics, Elsevier, vol. 30(4), pages 1933-1950, July.
  25. Pawlina, G. & Kort, P.M., 2001. "Real Options in an Aymmetric Duopoly: Who Benefits from your Competitive Disadvantage," Discussion Paper 2001-95, Tilburg University, Center for Economic Research.
  26. Borkovsky, Ron N. & Doraszelski, Ulrich & Kryukov, Yaroslav, 2009. "A Dynamic Quality Ladder Model with Entry and Exit: Exploring the Equilibrium Correspondence Using the Homotopy Method," CEPR Discussion Papers 7560, C.E.P.R. Discussion Papers.
  27. Jacobsen, Grant D., 2011. "The Al Gore effect: An Inconvenient Truth and voluntary carbon offsets," Journal of Environmental Economics and Management, Elsevier, vol. 61(1), pages 67-78, January.
  28. Dan Kovenock & Raymond J. Deneckere, 1996. "Bertrand-Edgeworth duopoly with unit cost asymmetry (*)," Economic Theory, Springer, vol. 8(1), pages 1-25.
  29. Ariel Pakes & Paul McGuire, 1992. "Computing Markov perfect Nash equilibria: numerical implications of a dynamic differentiated product model," Discussion Paper / Institute for Empirical Macroeconomics 58, Federal Reserve Bank of Minneapolis.
  30. Lambrecht, Bart & Perraudin, William, 2003. "Real options and preemption under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 619-643, February.
  31. Amanda I. Lee & AJames Alm, 2004. "The Clean Air Act Amendments and Firm Investment in Pollution Abatement Equipment," Land Economics, University of Wisconsin Press, vol. 80(3), pages 433-447.
  32. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
  33. C. L. Benkard & P. Jeziorski & B. Van Roy & G. Y. Weintraub, 2008. "Nonstationary Oblivious Equilibrium," Economics Working Paper Archive 568, The Johns Hopkins University,Department of Economics.
  34. Giovanni Maggi, 1996. "Endogenous Leadership in a New Market," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 641-659, Winter.
  35. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  36. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
  37. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
  38. Markovich, Sarit & Moenius, Johannes, 2009. "Winning while losing: Competition dynamics in the presence of indirect network effects," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 346-357, May.
  39. Matthew E. Kahn & Erin T. Mansur, 2010. "How Do Energy Prices, and Labor and Environmental Regulations Affect Local Manufacturing Employment Dynamics? A Regression Discontinuity Approach," NBER Working Papers 16538, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:30:y:2012:i:1:p:102-115. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.