Regulation of Investments in Infrastructure

Denis Claude (), Charles Figuieres and Mabel Tidball ()
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Denis Claude: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper explores the dynamic properties of price-based policies in a model of competition between two jurisdictions. Jurisdictions invest over time in infrastructure to increase the quality of the environment, a global public good. They are identical in all respects but one: initial stocks of infrastructure. This is a dynamic type of heterogeneity that disappears in the long run. Therefore, at the steady state, usual intuitions from static settings apply: identical jurisdictions inefficiently underinvest, calling for public subsidies. In the short run, however, counterintuitive properties are established: (i) the evolution of capital stocks can be nonmonotonic and (ii) one jurisdiction can be temporarily taxed, even though it should increase its investment, whereas the other is subsidized. It is shown how these phenomena are related to initial conditions and the kind of interactions between infrastructure capitals, complementarity or substitutability.

Keywords: public infrastructure; green infrastructure; duopolity; differential game; investment; tax; subsidy (search for similar items in EconPapers)
Date: 2012-01-27
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Published in Journal of Public Economic Theory, 2012, 14 (1), pp.35-66. ⟨10.1111/j.1467-9779.2011.01528.x⟩

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Working Paper: Regulation of Investments in Infrastructure (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-00675330

DOI: 10.1111/j.1467-9779.2011.01528.x

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