IDEAS home Printed from https://ideas.repec.org/p/lam/wpaper/08-04.html
   My bibliography  Save this paper

Short-run stick and long-run carrot policy: the role of initial conditions

Author

Listed:
  • Denis Claude
  • Charles Figuières
  • Mabel Tidball

Abstract

This paper explores the dynamic properties of price-based policies in a model of competition between two jurisdictions. Jurisdictions invest over time in infrastructure to increase the quality of the environment, a global public good. They are identical in all respects but one: initial stocks of infrastructure. This is a dynamic type of heterogeneity that disappears in the long run. Therefore, at the steady state, usual intuitions from static settings apply: identical jurisdictions inefficiently under-invest, calling for public subsidies. In the short run, however, counterintuitive properties are established: i) the evolution of capital stocks can be non-monotonic, ii) one jurisdiction can be temporarily taxed, even though it should increase its investment, whereas the other is subsidized. It is shown how these phenomena are related to initial conditions and the kind of interactions between infrastructure capitals, complementarity or substitutability.

Suggested Citation

  • Denis Claude & Charles Figuières & Mabel Tidball, 2008. "Short-run stick and long-run carrot policy: the role of initial conditions," Working Papers 08-04, LAMETA, Universtiy of Montpellier, revised Feb 2008.
    • Handle: RePEc:lam:wpaper:08-04
    as

    Download full text from publisher

    File URL: http://www.lameta.univ-montp1.fr/Documents/DR2008-04.pdf
    File Function: First version, 2008
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Driskill, Robert A. & McCafferty, Stephen, 1989. "Dynamic duopoly with adjustment costs: A differential game approach," Journal of Economic Theory, Elsevier, vol. 49(2), pages 324-338, December.
    2. Benchekroun, Hassan & van Long, Ngo, 1998. "Efficiency inducing taxation for polluting oligopolists," Journal of Public Economics, Elsevier, vol. 70(2), pages 325-342, November.
    3. Bergstrom, Theodore C. & Cross, John G. & Porter, Richard C., 1981. "Efficiency-inducing taxation for a monopolistically supplied depletable resource," Journal of Public Economics, Elsevier, vol. 15(1), pages 23-32, February.
    4. Fershtman, Chaim & Muller, Eitan, 1986. "Turnpike properties of capital accumulation games," Journal of Economic Theory, Elsevier, vol. 38(1), pages 167-177, February.
    5. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Denis Claude & Charles Figuières & Mabel Tidball, 2012. "Regulation of Investments in Infrastructure: The Interplay between Strategic Behaviors and Initial Endowments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(1), pages 35-66, February.
    2. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
    3. Mathias Berthod, 2020. "Commitment and efficiency-inducing tax and subsidy scheme in the development of a clean technology," Working Papers hal-02489971, HAL.
    4. Mathias Berthod, 2020. "Commitment and efficiency-inducing tax and subsidy scheme in the development of a clean technology," CEE-M Working Papers hal-02489971, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    5. Claudio Piga, 2003. "Pigouvian Taxation in Tourism," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(3), pages 343-359, November.
    6. Martín-Herrán, Guiomar & Rubio, Santiago J., 2016. "The Strategic Use of Abatement by a Polluting Monopoly," ETA: Economic Theory and Applications 244532, Fondazione Eni Enrico Mattei (FEEM).
    7. Roberto Cellini & Luca Lambertini, 2011. "R&D Incentives Under Bertrand Competition: A Differential Game," The Japanese Economic Review, Japanese Economic Association, vol. 62(3), pages 387-400, September.
    8. Benchekroun, Hassan & Ray Chaudhuri, Amrita, 2011. "Environmental policy and stable collusion: The case of a dynamic polluting oligopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 479-490, April.
    9. Dragone Davide & Tampieri Alessandro & Lambertini Luca & Palestini Arsen, 2013. "On the Optimal Number of Firms in the Commons: Cournot vs Bertrand," Mathematical Economics Letters, De Gruyter, vol. 1(1), pages 25-34, October.
    10. N. Baris Vardar & Georges Zaccour, 2020. "Exploitation of a Productive Asset in the Presence of Strategic Behavior and Pollution Externalities," Mathematics, MDPI, vol. 8(10), pages 1-28, October.
    11. repec:ebl:ecbull:v:17:y:2008:i:13:p:1-11 is not listed on IDEAS
    12. Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2018. "A dynamic model of quality competition with endogenous prices," Journal of Economic Dynamics and Control, Elsevier, vol. 94(C), pages 190-206.
    13. Hassan Benchekroun & Ngo Long, 2018. "Nurturing an Infant Industry by Markovian Subsidy Schemes," Dynamic Games and Applications, Springer, vol. 8(3), pages 519-541, September.
    14. Santiago J. Rubio, 2002. "On The Coincidence Of The Feedback Nash And Stackelberg Equilibria In Economic Applications Of Differential Games," Working Papers. Serie AD 2002-11, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    15. Giacomo Calzolari & Luca Lambertini, 2006. "Tariffs vs Quotas in a Model of Trade with Capital Accumulation," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 632-644, September.
    16. Denis Claude & Mabel Tidball, 2010. "Efficiency inducing taxation for polluting oligopolists: the irrelevance of privatization," Economics Bulletin, AccessEcon, vol. 30(4), pages 2946-2954.
    17. Michele Bisceglia & Roberto Cellini & Luca Grilli, 2022. "On the dynamic optimality of yardstick regulation," Annals of Operations Research, Springer, vol. 315(1), pages 73-92, August.
    18. Baldini, Massimo & Lambertini, Luca, 2011. "Profit taxation and capital accumulation in a dynamic oligopoly model," Japan and the World Economy, Elsevier, vol. 23(1), pages 13-18, January.
    19. Benchekroun, Hassan & Van Long, Ngo, 2002. "On the multiplicity of efficiency-inducing tax rules," Economics Letters, Elsevier, vol. 76(3), pages 331-336, August.
    20. D. Dragone & L. Lambertini & A. Palestini, 2011. "On the feedback solution of a differential oligopoly game with capacity adjustment," Working Papers wp741, Dipartimento Scienze Economiche, Universita' di Bologna.
    21. Wirl, Franz, 2010. "Dynamic demand and noncompetitive intertemporal output adjustments," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 220-229, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lam:wpaper:08-04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Patricia Modat (email available below). General contact details of provider: https://edirc.repec.org/data/lamplfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.