Protection and employment under uncertainty: a real option approach |
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Authors: | Yu-Fu Chen I-Hui Cheng |
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Affiliation: | 1. Department of Economic Studies , University of Dundee , Dundee, DD1 4HN, UK;2. Department of Applied Economics , National University of Kaohsiung , Nan-Tzu, Kaohsiung 811, Taiwan |
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Abstract: | The paper explores the effect of protection lobbying by solving a firm's dynamic optimization problem where there is uncertainty about future demand, the success of lobbying and non-zero entry/exit costs. It is found that firms in declining industries tend to lobby to prevent shutting down factories during economic turndowns. In contrast, firms in growing industries tend to lobby to prevent other firms from entering the market. The degree of this effect depends on the ratio of exit costs to entry costs. It is shown that the higher the ratio, the stronger the effect. |
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