Innovation and Adaptation under Incentive Anti-inflation Plans

Kenneth Koford

Public Finance = Finances publiques, 1986, vol. 41, issue 2, 218-31

Abstract: This paper examines the effects of incentive anti-inflation plans upon a firm's incentives to innovate and to adapt to shocks. Such plans create a uniform tax upon price increases and subsidy for price decreases. The incentive plans' effects upon innovation dependupon the rule. One rule increases firms' incentives to develop cost-reducing innovations, but generally reduces firms' incentives to develop demand-increasing innovations and speed of adjustment to demand and input price shocks. Another rule reduces the profits from highly successful innovations, but increases the profits from less successful innovations, with uncertain overall effect on the incentive to innovate.

Date: 1986
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:41:y:1986:i:2:p:218-31

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