Governmental activity and private capital adjustment
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Governmental activity and private capital adjustment. / Ott, Ingrid; Soretz, Susanne.
Lüneburg : Institut für Volkswirtschaftslehre der Universität Lüneburg, 2006. (Working paper series in economics; No. 26).Research output: Working paper › Working papers
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TY - UNPB
T1 - Governmental activity and private capital adjustment
AU - Ott, Ingrid
AU - Soretz, Susanne
N1 - Literaturverz. S. 21 - 22
PY - 2006
Y1 - 2006
N2 - We analyze within a dynamic model how firms decide on capital investment if the accompanying adjustment costs are a function of governmental activity. The government provides a public input and decides on the degree of rivalry. The productive public input enhances private capital productivity and reduces adjustment costs. We derive the equilibrium in which capital and investment ratio are both constant, carry out comparative dynamic analysis and discuss the model's policy implications. Increasing the amount of the public input unequivocally spurs capital investment whereas the result becomes ambiguous with respect to the impact of rivalry. Since a reduction in congestion increases the individually available amount of the public input, crowding out effects may lead to a reduction in the equilibrium capital stock. Most of the analysis is conducted for general production functions, although the case of CES technology is also considered.
AB - We analyze within a dynamic model how firms decide on capital investment if the accompanying adjustment costs are a function of governmental activity. The government provides a public input and decides on the degree of rivalry. The productive public input enhances private capital productivity and reduces adjustment costs. We derive the equilibrium in which capital and investment ratio are both constant, carry out comparative dynamic analysis and discuss the model's policy implications. Increasing the amount of the public input unequivocally spurs capital investment whereas the result becomes ambiguous with respect to the impact of rivalry. Since a reduction in congestion increases the individually available amount of the public input, crowding out effects may lead to a reduction in the equilibrium capital stock. Most of the analysis is conducted for general production functions, although the case of CES technology is also considered.
KW - Economics
KW - Governmental activity
KW - cogested public inputs
KW - adjustment costs
M3 - Working papers
T3 - Working paper series in economics
BT - Governmental activity and private capital adjustment
PB - Institut für Volkswirtschaftslehre der Universität Lüneburg
CY - Lüneburg
ER -