Tourism Investments Under Uncertainty: an Economic Analysis of "Eco-monsters"

Guido Candela (), Massimiliano Castellani () and Maurizio Mussoni
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Guido Candela: University of Bologna and The Rimini Centre for Economic Analysis, Rimini, Italy
Massimiliano Castellani: University of Bologna and The Rimini Centre for Economic Analysis, Rimini, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: “Ecological monsters” (“eco-monsters”) can be the bizarre, but legal, outcome of rational choices made by two agents: (i) a firm whose investments depend on Governmental permits; (ii) a policy maker having the discretionary power on the permits. This paper will determine the existence conditions which create a legal “eco-monster”. The model consists of a sequential noncooperative game with equilibrium in terms of positive expected firm profits and policy maker net balance ending up with a non-zero-sum game and a double failure: (i) a market failure, when the firm interrupts and abandons the investment, and (ii) a public failure, when the policy maker can not avoid the creation of “eco-monsters”. Policy implications and partisan party effects are explored: for certain parameters values, the economic policy can be ineffective in decreasing the “ecomonsters” frequency as a paradoxical, but rational, outcome in a stochastic framework, with real options and environmental externalities. JEL Classifications: C72-D62-D73

Keywords: Noncooperative Games; Externalities; Real Options (search for similar items in EconPapers)
Date: 2008-01
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Citations: View citations in EconPapers (2)

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