Underinvestment in public goods: The influence of state depended investment costs

Nikos Ebel () and Benteng Zou ()
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Benteng Zou: CREA, University of Luxembourg

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: In this paper we determine and analyze open loop and Markovian perfect equilibrium of a standard capital accumulation differential games, which is extended by a state depended cost function. As an application of the model we do consider knowledge accumulation or lobbying of firms with connected objectives. By using Pontryagin maximum principle and Hamilton-Jacob-Bellman equation, we find that the feedback strategies could be worse than open loop strategy, which is neither only due to ‘linearity’ as inWirl (1996, European Journal of Political Economy) nor only due to ’feedback information’ as Fershtman and Nitzan (1991, European Economic Review). Rather it is a mixed effect of these two.

JEL-codes: C71 C72 H41 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-gth, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:09-07

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