Green industrial policy, information asymmetry, and repayable advance
Guy Meunier and
Jean‐Pierre Ponssard
Journal of Public Economic Theory, 2024, vol. 26, issue 1
Abstract:
The energy transition requires the deployment of risky research and development programs, most of which are partially financed by public funding. Recent recovery plans, associated with the COVID‐19 pandemic and the energy transition, increased the funding available to finance innovative low‐carbon projects and called for an economic evaluation of their allocation. This paper analyzes the potential benefit of using repayable advance: a lump‐sum payment to finance the project that is paid back in case of success. The relationship between the state and innovative firms is formalized in the principal‐agent framework. Investing in an innovative project requires an initial observable capital outlay. We introduce asymmetric information on the probability of success, which is known to the firm but not to the state agency. The outcome of the project, if successful, delivers a private benefit to the firm and an external social benefit to the state. In this context a repayable advance consists in rewarding failure. We prove that it is a superior strategy in the presence of pure adverse selection. We investigate under what conditions this result could be extended in the presence of moral hazard. Implications for green industrial policy are discussed.
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://doi.org/10.1111/jpet.12668
Related works:
Working Paper: Green industrial policy, information asymmetry, and repayable advance (2024)
Working Paper: Green industrial policy, information asymmetry and repayable advance (2023) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:26:y:2024:i:1:n:e12668
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1097-3923
Access Statistics for this article
Journal of Public Economic Theory is currently edited by Rabah Amir, Gareth Myles and Myrna Wooders
More articles in Journal of Public Economic Theory from Association for Public Economic Theory Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().