Informational externalities,strategic delay,and optimal investment subsidies

Abstract This paper examines optimal government policy when private investment generates information, but investors cannot internalize the informational value their actions have to others. Equilibrium exhibits inefficient delay, as investors adopt a wait‐and‐see approach. The government can alter incentives via an investment subsidy, but complications arise, since future subsidies may induce investors to disregard current policy initiatives. The paper shows that the government achieves its desired outcome only when the the investment subsidy is financed by a non‐distortionary, lump‐sum tax. When taxation is distortionary, the government faces a time inconsistency problem that may prevent effective policy.     

Attracting private investment: Tax reduction,investment subsidy,or both?

This paper uses a real-option model to examine the net benefit to a government from using tax cut and/or investment subsidy as incentives to induce immediate investment. Although earlier papers generally concluded that investment subsidy dominates tax cut, it is observed that many governments use a combination of subsidy and tax cut. We show that, when the government uses a different discount rate from private firms, and when it has to borrow money to provide an investment subsidy, it is possible to get an internal optimum; that is, it might be optimal for the government to provide an investment subsidy as well as charge a positive tax rate on the profits from the project. Thus, we provide an explanation for the puzzling fact that many governments provide an investment subsidy to a firm while simultaneously taxing its profits.     

INTERCONNECTION AGREEMENT BETWEEN INTERNET SERVICE PROVIDERS AND THE OPTIMAL POLICY INTERVENTION: THE CASE OF COURNOT‐TYPE COMPETITION UNDER NETWORK EXTERNALITIES*

We derive the optimal subsidy policy for an interconnection agreement between two symmetric Internet service providers (ISPs) competing á la Cournot in a network service market. The interconnection quality agreed upon is lower than the socially optimal level, as suggested by Crémer et al. (2000 ). In the basic model where both ISPs compete in the domestic market, the optimal investment subsidy rate depends positively on the strength of network externalities. In the extended model where home and foreign ISPs compete in the home market, the optimal subsidy rate for the home government is higher than in the basic model.     

Optimal fiscal policy in the Uzawa-Lucas model with externalities

Summary. This paper devises a fiscal policy by means of which the first-best optimum equilibrium is attained as a market equilibrium in the Uzawa-Lucas model when average human capital has an external effect on productivity. The optimal policy requires the use of a subsidy to investment in human capital which can be financed by a tax on labor income. Lump-sum taxation is not required to balance the government budget either in the steady state or in the transitional phase. Physical capital income should not be taxed. Alternatively, the optimal growth path can be attained by means of a subsidy to human capital. Received: March 21, 2002; revised version: September 4, 2002 RID="*" ID="*" Financial support from the Spanish Ministry of Science and Technology through PNICDYIT grant SEC2002-03663 is gratefully acknowledged.     

International R&D Rivalry and Industrial Strategy without Government Commitment

We examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfarc are higher when government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment thus yields welfare gains (though they are small) but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all.     

Segmented Work and Divided Workers: A Review Article

The Coase theorem is often interpreted as demonstrating why private negotiations between polluters and victims can yield efficient levels of pollution without government interference. It is considered by many to provide the theoretical underpinnings for "free-market" solutions to environmental problems. This article explains why misinterpreting Coasian negotiations as a market driven process leads to erroneous conclusions. More importantly, this article demonstrates why negotiations between polluters and victims would fail to yield efficient outcomes even if property rights were well-defined, even if there were only a single victim, even if negotiations entailed no transaction costs, and even if negotiators behaved rationally and reached a successful agreement. Unlike other critiques of the Coase theorem that focus on irrational behavior and transaction costs, our critique identifies perverse incentives that arise even under conditions most favorable to the theorem. By accepting, rather than challenging, the premises of the theorem, our analysis provides an "internal" critique that strengthens well-known "external" criticisms.     

Strategic step-by-step negotiation

We analyze a specific type of negotiation process where parties proceed in stages taking into consideration that negotiation may end prematurely with an inefficient agreement. Parties negotiate only one increasing pie, thereby avoiding inefficiencies which are typical for issue-by-issue negotiations. For ann-stage game, we prove the existence of a unique subgame-perfect equilibrium. We then show that step-by-step negotiation can only improve players' expected payoffs if negotiation in stages reduces the difference between their equilibrium offers. For this to occur, however, the risk of negotiation must be affected by the agenda of the bargaining problem.     

SHORT‐RUN POLICY COMMITMENT WHEN INVESTMENT TIMING IS ENDOGENOUS: ‘MORE HARM THAN GOOD?’

In our model, firms choose when to set cost‐reducing investment and the government, which only has short‐run commitment power, sets an output subsidy. We show that firms that delay investment without government intervention have an incentive to invest early under policy activism, strategically underinvesting or overinvesting to obtain larger subsidies. The policy scheme thus creates a new, potentially more harmful, distortion. Under oligopoly, a firm has a weaker incentive to manipulate policy than under monopoly, which makes policy intervention less harmful. We investigate when the government may do better by adhering to laissez‐faire than by engaging in active policy intervention.     

Finite allocation mechanisms: approximate Walrasian versus approximate Direct Revelation

Summary. This paper obtains finite counterparts of previous results that showed the informational efficiency of the Walrasian mechanism among all mechanisms yielding Pareto-optimal individually rational trades in exchange economies while using a continuum of possible messages. In particular, we develop finite counterparts of the superiority, with respect to message-space dimension, of the Walrasian mechanism over Direct Revelation (DR). We measure a finite mechanism's cost by the number of its (equilibrium) messages. Our two main results are as follows: (1) For exchange economies we find that the overall (maximum) error of a (sufficiently fine) approximate Walrasian mechanism is less than the overall error of a not-more-costly approximate DR mechanism whose equilibrium outcomes are trades that are (approximately) Pareto optimal and individually rational; more generally, approximate Walrasian mechanisms are superior, in the same sense, to approximations of any continuum mechanism whose outcomes are Pareto optimal individ ually rational trades and whose message space has higher dimension than that of the Walrasian mechanism. (2) As we increase without limit the dimension of the set of environments (characteristics) defining our class of exchange economies, the extra cost of DR approximations relative to Walrasian approximations, when both achieve the same overall error, also grows without limit. Thus the informational superiority of the Walrasian mechanism emerges again when we approximate it and take the finite number of messages in the approximation as our cost measure. Received: June 16, 2002; revised version: July 22, 2002 RID="*" ID="*" The second author is grateful for support from National Science Foundation grant #IIS-0118600. Correspondence to: T. Marschak     

Tax on emissions or subsidy to renewables? Evaluating the effects on the economy and on the environment

We examine the relationship between the economy and the environment in a model where production uses nonpolluting renewable and polluting nonrenewable resources. There is policy intervention through a tax on emissions and a subsidy to renewables extraction/production. Results show that both instruments are able to decrease emissions intensity of output. However, when used together, the desired effect is higher. Empirically it is shown that the subsidy achieves higher renewables intensity and although present emissions per output are similar for both instruments, the subsidy achieves lower future levels.     

战略性研发补贴政策稳健吗?-基于中间品贸易的视角

在Stackelberg竞争框架下,本文沿用Spencer and Brander(1983)第三国市场模型,考虑存在中间品贸易情形时,一国的战略性研发政策。研究结果表明,在只有单个国家可以实施研发政策的情况下,若最终产品间的差异程度较大(小),那么该国的最优研发政策为征税(补贴);而当两国政府均可以干预各自国内企业研发时,一国最优的研发政策将随最终产品间的差异程度不同而选择征税、补贴或不干预,并且当最终产品间的差异程度位于一定范围之内时,一国的研发补贴政策并不会招致另一国的报复,因此,战略性研发补贴政策并不如Leahyand Neary(2001)分析的稳健。     

Matching public support for private product-innovating R&D: a theoretical analysis

This paper develops a theoretical model of product innovation where research and development (R&D) effort by a monopolist firm is endogenous and its outcome uncertain. The government attempts to aid such efforts with a matching grant. We consider different scenarios depending on whether two parties act simultaneously, act sequentially, or take part in a dynamic cooperative game with a trigger strategy. We also consider cases (i) when the products are exported, (ii) when the firm lobbies for R&D subsidy, and (iii) when the firm is foreign owned. We characterize situations when government intervention increases the chances of product innovation and when it does not.     

Assortative marriage and the effects of government homecare subsidy programs on gender wage and participation inequality

We develop a model of the labor market where firms incur an adjustment cost when one of their workers quits, and males and females form households assortatively by skill. We show how this environment can lead to an economy where females earn less and drop out more frequently than equally skilled males in equilibrium, even when males and females constitute ex-ante identical populations. We then examine how different government homecare subsidy schemes may affect such gender inequality in the labor market. We show that the effect of government homecare subsidy schemes on gender inequality depends crucially on the form in which the subsidy is given and to whom it is allocated.     

国际多市场寡头条件下的贸易政策和产业政策

国际多市场寡头是Bulow( 1 985)提出的多市场寡头概念在国际贸易领域的自然延伸。在本文中 ,市场之间联系的纽带是本国企业具有规模收益递减的生产技术。本文的主要结论是 ,第一 ,如果本国企业与外国企业在外国市场进行价格竞争 ,那么 ,最优干预组合包括国内生产补贴与出口税 ,它们对本国福利的作用是一致的。第二 ,如果本国企业与外国企业在外国市场进行数量竞争 ,那么 ,最优干预政策组合包括国内生产补贴与出口补贴 ,它们作用于本国福利的方向是不一致的 ,这时 ,本国政府用国内生产补贴执行反托拉斯职能 ,用出口补贴执行利润转移职能。第三 ,作为模型的一个应用 ,本文论证了出口退税政策会加剧国内市场的扭曲 ;而且它不一定能够提高本国福利。     

Specific vs Ad Valorem Strategic Export Subsidies with Taxation Distortion

This paper employs a model to compare the welfare between optimal specific and ad valorem export subsidies if the subsidy payment is financed by distortional taxation. It is found that the welfare under the specific subsidy regime is higher (lower) than that under the ad valorem subsidy regime if the social cost of taxation distortion is low (high). Moreover, the signs of the two optimal subsidies are also crucially dependent on this social cost. They are positive (negative) if the social cost is low (high).     

战略性研发补贴政策稳健吗?-基于中间品贸易的视角

在Stackelberg竞争框架下,本文沿用Spencer and Brander(1983)第三国市场模型,考虑存在中间品贸易情形时,一国的战略性研发政策。研究结果表明,在只有单个国家可以实施研发政策的情况下,若最终产品间的差异程度较大(小),那么该国的最优研发政策为征税(补贴);而当两国政府均可以干预各自国内企业研发时,一国最优的研发政策将随最终产品间的差异程度不同而选择征税、补贴或不干预,并且当最终产品间的差异程度位于一定范围之内时,一国的研发补贴政策并不会招致另一国的报复,因此,战略性研发补贴政策并不如LeahyandNeary(2001)分析的稳健。     

Quantitative growth effects of subsidies in a search theoretic R&D model

Should government subsidize R&D and does it matter how these subsidies are allocated? We examine these questions in a dynamic model where R&D is described as sequential sampling from a distribution of new ideas. Successful discoveries affect future available resources and incentives for further R&D. Consequently, there may be under-investment in R&D. We study the effect of government interventions aimed at fostering growth through R&D. Calibrating the model with aggregate data from the Israeli business sector allows us to quantitatively compare two forms of support resembling those actually used to encourage R&D in the Israeli business sector: (i) an unrestricted subsidy that may be used at the recipients' discretion to finance R&D or other investments, (ii) a subsidy earmarked by the government for R&D activities only. While there is no theoretical way to determine which of the two subsidies will have a greater impact on search for new ideas and growth, we find that in the calibrated economy both subsidies have a significant but similar impact on the economy's output and TFP growth rates. Accordingly, in the case of the Israeli business sector, the incentives to conduct R&D were sufficiently strong, and no R&D-specific encouragement was needed. However, a sensitivity analysis reveals that for economies characterized by other parameter values this result may not be true. Correspondence to: B. Bental     

“互联网+”赋能企业创新的异质动态效应研究——政府研发资助的调节作用

在国家推动互联网与实体经济深度融合的关键时期,以政府研发资助为切入点,剖析政府应如何更好地支持企业践行“互联网+”创新战略。在阐释政府研发资助影响“互联网+”企业创新内在机制的基础上,基于2006-2018年中国省级面板数据及门槛回归模型进行实证检验。研究发现：“互联网+”显著推动企业创新效率改善,而政府研发资助有助于强化这种积极影响;企业层面的“互联网+”创新溢出存在明显的政府研发资助三重门槛效应,只有当政府研发资助强度超越一定门槛条件时,才能最大限度地释放“互联网+”的创新溢出;政府研发资助调节下的“互联网+”创新溢出效应具有显著空间异质性特征,在不同空间层面上显现出差异化和动态化调节影响;现阶段政府研发资助对“互联网+”企业创新的正向调节溢出还相对有限,且实际调节效果具有差异化特征,表现为中部地区最为显著、东部地区次之、西部地区最弱的阶梯状分布。研究结论可为新时代下构建时空分异的政府研发资助策略,进一步加快释放“互联网+”企业创新的溢出红利提供一定启示。     

The Efficiency of Direct Public Involvement in Environmental Policymaking: An Experimental Test

In collaborative negotiation, stakeholder representatives are charged with the development of a mutually acceptable set of public policies. Although this approach has become popular in environmental negotiations, little is known about the characteristics of the outcomes that are reached. In this paper, we employ an Edgeworth box framework to investigate the nature of bargaining over public goods (environmental policies) that have multiple attributes. We then design and conduct laboratory experiments within this framework to test whether negotiated outcomes satisfy standard axiomatic bargaining predictions under a variety of conditions. Specifically, we test whether two parties with Pareto inefficient endowments of two goods will trade to Pareto improving and Pareto efficient outcomes, and to the Nash bargain in particular. We vary whether the Nash bargain coincides with or diverges from the outcome that maximizes the joint payoff, or the outcome that equalizes payoffs, and whether subjects are provided full or partial information. We find that bargainers reach Pareto improving and efficient outcomes across treatments, but withdraw support for the Nash bargain when it generates unequal payments or when payoff information is private. We conclude that this experimental framework offers a promising method for studying multi-attribute negotiations.     

Learning by Doing, Precommitment and Infant-Industry Promotion

We examine the implications for strategic trade policy of different assumptions about precommitment in a two-period Cournot oligopoly game with learning by doing. The inability of firms and governments to precommit to future actions encourages strategic behaviour which justifies an optimal first-period export tax relative to the profit-shifting benchmark of an export subsidy. In the linear case the optimal subsidy is increasing in the rate of learning with government precommitment but decreasing in it without, in apparent contradiction to the infant-industry argument. Extensions to active foreign policy, distortionary taxation and Bertrand competition are also considered.