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Article
Regulation of investments in infrastructure: the interplay between strategic behaviors and initial endowments
Journal of Public Economic Theory (2012)
  • Denis Claude
  • Charles Figuieres
  • Mabel Tidball
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 under-invest, calling for public subsidies. In the short run, however, counterintuitive properties are established: i) the evolution of capital stocks can be non-monotonic, 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
  • Infrastructure,
  • Green Infrastructure,
  • Subsidy,
  • Investment,
  • complementarity,
  • substitutability
Disciplines
Publication Date
February, 2012
Citation Information
Denis Claude, Charles Figuieres and Mabel Tidball. "Regulation of investments in infrastructure: the interplay between strategic behaviors and initial endowments" Journal of Public Economic Theory Vol. 14 Iss. 1 (2012)
Available at: http://works.bepress.com/denis_claude/5/