Short-run policy commitment when investment timing is endogenous: "More harm than good?"

Gerda Dewit and Dermot Leahy

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: 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.

Keywords: Short-run government commitment; Microeconomic policy; Endogenous policy leadership; Investment timing; Uncertainty; Laissez faire (search for similar items in EconPapers)
JEL-codes: D21 D80 H23 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2004-09
New Economics Papers: this item is included in nep-pbe
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Related works:
Journal Article: SHORT‐RUN POLICY COMMITMENT WHEN INVESTMENT TIMING IS ENDOGENOUS: ‘MORE HARM THAN GOOD?’ (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n1400904

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