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Sustainable infrastructure investment with labor-only production

  • Tapiero, Charles S.
  • Kogan, Konstantin
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    The purpose of this paper is to consider a partial equilibrium model for a sustainable infrastructure investment in a labor-production economy. We consider an inter-temporal Stackelberg game in a "capital primitive" economy where all capital investments are made by a Central Agency (a government). The government is assumed to have a number of objectives including sustainability of the infrastructure investments, while firms are assumed to be myopic, maximizing only current profits and paying taxes as a function of their returns. Both open-loop and closed-loop (feedback) Stackelberg strategies are considered. Based on the analysis of the investment game, some conclusions are drawn regarding the propensity to invest as a function of sustainability constraints, the taxation rates and employment levels. We then show that investments can tend to a constant level and thus strategic government goals of sustainability and employment growth can be planned only if labor costs and the general price index are steady or characterized by a set of conditions ensuring the attainability of the steady-state investment.

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    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 113 (2008)
    Issue (Month): 2 (June)
    Pages: 876-886

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    Handle: RePEc:eee:proeco:v:113:y:2008:i:2:p:876-886
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