Short-run policy commitment when investment timing is endogenous: "More harm than good?"
AbstractWe introduce endogenous leadership in a game between government and firms, in which the government has short-run commitment power only and firms choose when to invest. We show that firms that delay investment in the absence of government intervention have an incentive to invest early and strategically under policy activism. Then, even though a policy scheme succeeds in correcting an existing distortion targeted by the government, it can create a new and potentially more harmful one. We investigate when the government may do better by adhering to laissez-faire than by engaging in active policy intervention.
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Bibliographic InfoPaper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1400904.
Length: 30 pages
Date of creation: Sep 2004
Date of revision:
Short-run government commitment; Microeconomic policy; Endogenous policy leadership; Investment timing; Uncertainty; Laissez faire;
Other versions of this item:
- Gerda Dewit & Dermot Leahy, 2011. "Short‐Run Policy Commitment When Investment Timing Is Endogenous: ‘More Harm Than Good?’," Bulletin of Economic Research, Wiley Blackwell, vol. 63(1), pages 82-107, 01.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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