Does public investment reduce private investment risk ? A real option approach

Bruno Cruz and Aude Pommeret ()
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Bruno Cruz: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)

No 2002039, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: In this paper, the public investment provision takes place in a stochastic environnement. The role of the government is to remove a part of the uncertainty faced by the firm. If the government simply maximizes the value of the firm, then the optimal tax is smaller under imperfect competition then it is under perfect competition since more public capital reduces the selling price. But if the government seeks to maximize the consumer surplus, tax and public capital provision are a mean to correct the market and the optimal tax is then higher

Keywords: irreversible investment; public capital; uncertainty (search for similar items in EconPapers)
JEL-codes: E22 E62 H41 (search for similar items in EconPapers)
Pages: 26
Date: 2002-11-01
New Economics Papers: this item is included in nep-fin and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2002039

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