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Uncertain regulatory timing and market dynamics

  • Wilson, Nathan E.

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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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
DOI: 10.1016/j.ijindorg.2011.07.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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