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Behavioral approaches to optimal FDI incentives

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  • M. Rosenboim

    (Department of Economics, Sapir College, Sdearot, Israel)

  • I. Luski

    (Department of Economics, Ben-Gurion University of the Negev, Beer-Sheva, Israel)

  • T. Shavit

Abstract

Countries attempt to attract foreign investors by offering them a set of incentives. The most common types of foreign direct investment incentives are grants and tax relief. Although the amount of the grant is independent of future situations, the value of a tax relief depends on future profits. Our study used the behavioral approach to test experimentally the preferences of managers regarding the desired types of incentives under various conditions. We found, 'Regret Effect', 'Statues Quo Bias', and 'Insurance Effect' in subjects' decision making. A country can improve the incentives it offers by considering the various behavioral biases of the companies' managers. Copyright © 2008 John Wiley & Sons, Ltd.

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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 29 (2008)
Issue (Month): 7 ()
Pages: 601-607

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Handle: RePEc:wly:mgtdec:v:29:y:2008:i:7:p:601-607

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Christopher T. Taylor, 2000. "The Impact of Host Country Government Policy on US Multinational Investment Decisions," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 23(5), pages 635-647, 05.
  2. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3775, C.E.P.R. Discussion Papers.
  3. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  4. David Wettstein & Israel Luski & Todd Kaplan, 2003. "Government policy towards multi-national corporations," Economics Bulletin, AccessEcon, vol. 6(3), pages 1-8.
  5. Loomes, Graham & Sugden, Robert, 1987. "Testing for Regret and Disappointment in Choice under Uncertainty," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(388a), pages 118-29, Supplemen.
  6. repec:ebl:ecbull:v:6:y:2003:i:3:p:1-8 is not listed on IDEAS
  7. Loomes, Graham, 1988. "Further Evidence of the Impact of Regret and Disappointment in Choice under Uncertainty," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 55(217), pages 47-62, February.
  8. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 8(2), pages 360-71, May.
  9. Roszkowski, Michael J. & Snelbecker, Glenn E., 1990. "Effects of "Framing" on measures of risk tolerance: Financial planners are not immune," Journal of Behavioral Economics, Elsevier, Elsevier, vol. 19(3), pages 237-246.
  10. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, American Economic Association, vol. 82(5), pages 1120-41, December.
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