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Technology Adoption, Socila Learning, and Economic Policy

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Author Info

  • Paul Heidhues

    ()
    (University of Bonn and CEPR)

  • Nicolas Melissas

    ()
    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

We study a two-player dynamic investment model with information externalities and provide necessary and sufficient conditions for a unique switching equilibrium. When the public information is sufficiently high and a social planer therefore expects an investment boom, investments should be taxed. Conversely, any positive investment tax is suboptimally high if the public information is sufficiently unfavorable. We also show that an investment tax may increase overall investment activity.

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File URL: http://ftp.itam.mx/pub/academico/inves/melissas/10-02.pdf
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Bibliographic Info

Paper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 1002.

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Length: 46 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:cie:wpaper:1002

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Keywords: Information Externality; Strategic Waiting; Delay; Information Cascade; Investment Boom; Optimal Taxation;

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  1. George-Marios Angeletos & Alessandro Pavan, 2007. "Policy with Dispersed Information," NBER Working Papers 13590, National Bureau of Economic Research, Inc.
  2. Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, vol. 62(5), pages 1065-85, September.
  3. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
  4. Chamley, Christophe, 2004. "Delays and equilibria with large and small information in social learning," European Economic Review, Elsevier, vol. 48(3), pages 477-501, June.
  5. Avery, Christopher & Zemsky, Peter, 1998. "Multidimensional Uncertainty and Herd Behavior in Financial Markets," American Economic Review, American Economic Association, vol. 88(4), pages 724-48, September.
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