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Governmental activity and private capital adjustment

Author Info

Listed author(s):
  • Ingrid Ott

    ()

    (Institute of Economics, University of Lüneburg)

  • Susanne Soretz

    ()

    (Department Growth and Distribution, University of Hanover)

Abstract

We analyze within a dynamic model how firms decide on capital investment if the accompanying adjustment costs are a function of governmental activity. The government provides a public input and decides on the degree of rivalry. The productive public input enhances private capital productivity and reduces adjustment costs. We derive the equilibrium in which capital and investment ratio are both constant, carry out comparative dynamic analysis and discuss the model's policy implications. Increasing the amount of the public input unequivocally spurs capital investment whereas the result becomes ambiguous with respect to the impact of rivalry. Since a reduction in congestion increases the individually available amount of the public input, crowding out effects may lead to a reduction in the equilibrium capital stock. Most of the analysis is conducted for general production functions, although the case of CES technology is also considered.

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Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 26.

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Length: 27 pages
Date of creation: 13 Mar 2006
Handle: RePEc:lue:wpaper:26
Contact details of provider: Web page: http://leuphana.de/institute/ivwl.html

Keywords: Governmental activity; congested public inputs; adjustment costs;

Find related papers by JEL classification:

  • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
  • H40 - Public Economics - - Publicly Provided Goods - - - General
  • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
  • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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Cited by:

  1. Ingrid Ott & Susanne Soretz, 2006. "Nachhaltige Entwicklung durch endogeneUmweltwahrnehmung," Working Paper Series in Economics 24, University of Lüneburg, Institute of Economics.
  2. Lena Koller & Claus Schnabel & Joachim Wagner, 2007. "Schwellenwerte im Arbeitsrecht: Höhere Effizienz und Transparent durch Vereinheitlichung," Working Paper Series in Economics 40, University of Lüneburg, Institute of Economics.
  3. Jens Korunig, 2007. "Regulierung des Netzmonopolisten durch Verbot von Peak-load Pricing?," Working Paper Series in Economics 36, University of Lüneburg, Institute of Economics.
  4. Ingrid Ott & Christian Papilloud, 2006. "Converging institutions. Shaping the relationships between nanotechnologies, economy and society," Working Paper Series in Economics 32, University of Lüneburg, Institute of Economics.

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