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Optimal Investment in the Presence of Investment Shock and Congestion

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Author Info
Alberto A. Gaggero

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Abstract

This paper develops a dynamic overlapping-generations model in the presence of investment shocks and aims to understand how social welfare is affected by the investment decision of the firm and by the time of demand of the consumers. By simulating the model, I find that to maximize social welfare a considerable proportion of consumers should postpone their demand. Rational consumers, in fact, react to congestion by shifting their demand to the next period, whenever there is a positive shock affecting the investment function. However, policy-makers should consider policies favouring investment very carefully, since investment affects social welfare via a bell-shaped function.

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Publisher Info
Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 164 (2008)
Issue (Month): 2 (June)
Pages: 327-342
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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200806)164:2_327:oiitpo_2.0.tx_2-2

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Related research
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Find related papers by JEL classification:
L80 - Industrial Organization - - Industry Studies: Services - - - General
L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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This page was last updated on 2009-12-3.

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