Public capital and private investment, a real option approach

Bruno Cruz and Aude Pommeret ()

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: In this paper, public investment provision takes place in a stochastic environnement. The role of the government is to remove a part of the uncertainty faced by the firm. If the government simply maximizes the value of the firm, then the optimal tax is smaller under imperfect competition than it is under perfect competition since more public capital reduces the selling price. But if the government seeks to maximize the consumer surplus, tax and public capital provision are also a mean to correct the market and the optimal tax is then higher.

Keywords: irreversible investment; public capital; uncertainty (search for similar items in EconPapers)
JEL-codes: E22 E62 H41 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2003-05
New Economics Papers: this item is included in nep-pbe
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http://www.hec.unil.ch/deep/textes/03.10.pdf (application/pdf)

Related works:
Working Paper: Public Capital and Private Investment, a Real Option Approach (2015)
Working Paper: Public Capital and Private Investment, a Real Option Approach (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:03.10

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