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Uncertain regulatory timing and market dynamics

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  • 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.

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Bibliographic Info

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

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

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Handle: RePEc:eee:indorg:v:30:y:2012:i:1:p:102-115

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

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

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