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Informational Externalities, Strategic Delay, and the Search for Optimal Policy

  • Doyle, Matthew

This paper examines optimal policy when agents, private investors and a government, can learn about the economy by observing others. Investors can delay investment in order to exploit future information. Importantly, investors ignore the informational value of their actions to others when deciding: this externality results in inefficiently high delay, motivating government intervention. The government searches for the optimal policy, while learning about the economy. Complications arise since investors are aware of any systematic component to policy and may respond perversely to government initiatives. The paper characterizes the optimal government policy and shows that the government achieves its desired outcome.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p3813-2002-09-25.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10046.

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Date of creation: 25 Sep 2002
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Handle: RePEc:isu:genres:10046
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  28. Bertocchi, Graziella & Spagat, Michael, 1991. "Learning, Experimentation and Monetary Policy," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1991018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  29. Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
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  31. Hans-Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
  32. Baldwin, Robert E, 1969. "The Case against Infant-Industry Tariff Protection," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 295-305, May/June.
  33. Christophe Chamley, 2002. "Dynamic Speculative Attacks," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-119, Boston University - Department of Economics.
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