Technology adoption, social learning, and economic policy
We study a two-player dynamic investment model with information externalities and provide necessary and sufficient conditions for a unique switching equilibrium. Within this setup, we ask whether policymakers should interfere when better informed agents make individual investment decisions. We find that 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.
|Date of creation:||17 Nov 2010|
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- Alessandro Pavan & George-Marios Angeletos, 2008.
"Policy with Dispersed Information,"
2008 Meeting Papers
1103, Society for Economic Dynamics.
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- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010.
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Levine's Working Paper Archive
1193, David K. Levine.
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- 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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