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Regulation of Investments in Infrastructure: The Interplay between Strategic Behaviors and Initial Endowments

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 underinvest, calling for public subsidies. In the short run, however, counterintuitive properties are established: (i) the evolution of capital stocks can be nonmonotonic and (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.
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https://hal.archives-ouvertes.fr/hal-00675330
Contributor : Denis Claude Connect in order to contact the contributor
Submitted on : Wednesday, February 29, 2012 - 6:57:20 PM
Last modification on : Thursday, October 13, 2022 - 8:20:44 AM

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Denis Claude, Charles Figuieres, Mabel Tidball. Regulation of Investments in Infrastructure: The Interplay between Strategic Behaviors and Initial Endowments. Journal of Public Economic Theory, 2012, 14 (1), pp.35-66. ⟨10.1111/j.1467-9779.2011.01528.x⟩. ⟨hal-00675330⟩

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