Short-run policy commitment when investment timing is endogenous: "More harm than good?"
We introduce endogenous leadership in a game between government and firms, in which the government has short-run commitment power only and firms choose when to invest. We show that firms that delay investment in the absence of government intervention have an incentive to invest early and strategically under policy activism. Then, even though a policy scheme succeeds in correcting an existing distortion targeted by the government, it can create a new and potentially more harmful one. We investigate when the government may do better by adhering to laissez-faire than by engaging in active policy intervention.
|Date of creation:||Sep 2004|
|Date of revision:|
|Contact details of provider:|| Postal: Maynooth, Co. Kildare|
Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- D Leahy & J.P. Neary, 1998.
"Strategic Trade and Industrial PolicyTowards Dynamic Oligopolies,"
CEP Discussion Papers
dp0409, Centre for Economic Performance, LSE.
- Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April.
- J. Peter Neary & Dermot Leahy, 1998. "Strategic trade and industrial policy towards dynamic oligopolies," Working Papers 199814, School of Economics, University College Dublin.
- Leahy, Dermot & Neary, J Peter, 1998. "Strategic Trade and Industrial Policy Towards Dynamic Oligopolies," CEPR Discussion Papers 1968, C.E.P.R. Discussion Papers.
- J. Peter Neary & Dermot Leahy, 1998. "Strategic trade and industrial policy towards dynamic oligopolies," LSE Research Online Documents on Economics 20246, London School of Economics and Political Science, LSE Library.
- Neary, J.P. & Leahy, D., 1998. "Strategic Trade and Industrial Policy Towards Dynamic Oligopolies," Papers 98/14, College Dublin, Department of Political Economy-.
- Dewit, Gerda & Leahy, Dermot, 2004.
"Rivalry in uncertain export markets: commitment versus flexibility,"
Journal of International Economics,
Elsevier, vol. 64(1), pages 195-209, October.
- Dewit, Gerda & Leahy, Dermot, 2001. "Rivalry in Uncertain Export Markets: Commitment versus Flexibility," CEPR Discussion Papers 2771, C.E.P.R. Discussion Papers.
- Spencer, Barbara J. & Brander, James A., 1992. "Pre-commitment and flexibility : Applications to oligopoly theory," European Economic Review, Elsevier, vol. 36(8), pages 1601-1626, December.
- Rodrik, Dani, 1992. "Political economy and development policy," European Economic Review, Elsevier, vol. 36(2-3), pages 329-336, April.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
- Hamilton, Jonathan H. & Slutsky, Steven M., 1990.
"Endogenous timing in duopoly games: Stackelberg or cournot equilibria,"
Games and Economic Behavior,
Elsevier, vol. 2(1), pages 29-46, March.
- Hamilton, J.H. & Slutsky, S.M., 1988. "Endogenous Timing In Duopoly Games: Stackelberg Or Cournot Equilibria," Papers 88-4, Florida - College of Business Administration.
- R. W. Staiger & G. Tabellini, 1999. "Do Gatt Rules Help Governments Make Domestic Commitments?," Economics and Politics, Wiley Blackwell, vol. 11(2), pages 109-144, 07.
- Sadanand, Asha & Sadanand, Venkatraman, 1996. "Firm Scale and the Endogenous Timing of Entry: a Choice between Commitment and Flexibility," Journal of Economic Theory, Elsevier, vol. 70(2), pages 516-530, August.
- Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
- Dani Rodrik, 1987. "Policy Targeting with Endogenous Distortions: Theory of Optimum Subsidy Revisited," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 903-911.
- Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
When requesting a correction, please mention this item's handle: RePEc:may:mayecw:n1400904. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.