Industrial Policies vs Public Goods under Asymmetric Information

Industrial Policies vs Public Goods under Asymmetric Information

This paper presents an analytical framework that captures the informational problems and trade-offs that policy makers face when choosing between public goods (for example, infrastructure) and industrial policies (for example, firm- or sector-specific subsidies). After a discussion of the literature, the paper sets up the model economy, consisting of a government and a set of heterogeneous firms. It then presents the first-best allocation (under full information) of government resources among firms. Next, uncertainty is introduced by restricting information on firm productivity to be private to the firm. The paper develops an optimal contract (which replicates the first best), consisting of a tax-based mechanism that induces firms to reveal their true productivity. As this contract requires high government capacity, other, simpler policies are considered. The paper concludes that providing public goods is likely to dominate industrial policies under most scenarios, especially when government capacity is low.

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Bibliographic Details
Main Authors: Hevia, Constantino, Loayza, Norman, Meza-Cuadra, Claudia
Format: Working Paper biblioteca
Language:English
en_US
Published: World Bank, Washington, DC 2017-05
Subjects:INDUSTRIAL POLICY, PUBLIC GOODS, UNCERTAINTY, PRIVATE INFORMATION, FIRM SUBSIDIES, CORPORATE TAX,
Online Access:http://documents.worldbank.org/curated/en/343061493917982244/Industrial-policies-vs-public-goods-under-asymmetric-information
https://hdl.handle.net/10986/26732
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spelling dig-okr-10986267322024-08-09T08:55:56Z Industrial Policies vs Public Goods under Asymmetric Information Hevia, Constantino Loayza, Norman Meza-Cuadra, Claudia INDUSTRIAL POLICY PUBLIC GOODS UNCERTAINTY PRIVATE INFORMATION FIRM SUBSIDIES CORPORATE TAX This paper presents an analytical framework that captures the informational problems and trade-offs that policy makers face when choosing between public goods (for example, infrastructure) and industrial policies (for example, firm- or sector-specific subsidies). After a discussion of the literature, the paper sets up the model economy, consisting of a government and a set of heterogeneous firms. It then presents the first-best allocation (under full information) of government resources among firms. Next, uncertainty is introduced by restricting information on firm productivity to be private to the firm. The paper develops an optimal contract (which replicates the first best), consisting of a tax-based mechanism that induces firms to reveal their true productivity. As this contract requires high government capacity, other, simpler policies are considered. The paper concludes that providing public goods is likely to dominate industrial policies under most scenarios, especially when government capacity is low. 2017-05-23T22:20:58Z 2017-05-23T22:20:58Z 2017-05 Working Paper Document de travail Documento de trabajo http://documents.worldbank.org/curated/en/343061493917982244/Industrial-policies-vs-public-goods-under-asymmetric-information https://hdl.handle.net/10986/26732 English en_US Policy Research Working Paper;No. 8052 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank application/pdf text/plain World Bank, Washington, DC
institution Banco Mundial
collection DSpace
country Estados Unidos
countrycode US
component Bibliográfico
access En linea
databasecode dig-okr
tag biblioteca
region America del Norte
libraryname Biblioteca del Banco Mundial
language English
en_US
topic INDUSTRIAL POLICY
PUBLIC GOODS
UNCERTAINTY
PRIVATE INFORMATION
FIRM SUBSIDIES
CORPORATE TAX
INDUSTRIAL POLICY
PUBLIC GOODS
UNCERTAINTY
PRIVATE INFORMATION
FIRM SUBSIDIES
CORPORATE TAX
spellingShingle INDUSTRIAL POLICY
PUBLIC GOODS
UNCERTAINTY
PRIVATE INFORMATION
FIRM SUBSIDIES
CORPORATE TAX
INDUSTRIAL POLICY
PUBLIC GOODS
UNCERTAINTY
PRIVATE INFORMATION
FIRM SUBSIDIES
CORPORATE TAX
Hevia, Constantino
Loayza, Norman
Meza-Cuadra, Claudia
Industrial Policies vs Public Goods under Asymmetric Information
description This paper presents an analytical framework that captures the informational problems and trade-offs that policy makers face when choosing between public goods (for example, infrastructure) and industrial policies (for example, firm- or sector-specific subsidies). After a discussion of the literature, the paper sets up the model economy, consisting of a government and a set of heterogeneous firms. It then presents the first-best allocation (under full information) of government resources among firms. Next, uncertainty is introduced by restricting information on firm productivity to be private to the firm. The paper develops an optimal contract (which replicates the first best), consisting of a tax-based mechanism that induces firms to reveal their true productivity. As this contract requires high government capacity, other, simpler policies are considered. The paper concludes that providing public goods is likely to dominate industrial policies under most scenarios, especially when government capacity is low.
format Working Paper
topic_facet INDUSTRIAL POLICY
PUBLIC GOODS
UNCERTAINTY
PRIVATE INFORMATION
FIRM SUBSIDIES
CORPORATE TAX
author Hevia, Constantino
Loayza, Norman
Meza-Cuadra, Claudia
author_facet Hevia, Constantino
Loayza, Norman
Meza-Cuadra, Claudia
author_sort Hevia, Constantino
title Industrial Policies vs Public Goods under Asymmetric Information
title_short Industrial Policies vs Public Goods under Asymmetric Information
title_full Industrial Policies vs Public Goods under Asymmetric Information
title_fullStr Industrial Policies vs Public Goods under Asymmetric Information
title_full_unstemmed Industrial Policies vs Public Goods under Asymmetric Information
title_sort industrial policies vs public goods under asymmetric information
publisher World Bank, Washington, DC
publishDate 2017-05
url http://documents.worldbank.org/curated/en/343061493917982244/Industrial-policies-vs-public-goods-under-asymmetric-information
https://hdl.handle.net/10986/26732
work_keys_str_mv AT heviaconstantino industrialpoliciesvspublicgoodsunderasymmetricinformation
AT loayzanorman industrialpoliciesvspublicgoodsunderasymmetricinformation
AT mezacuadraclaudia industrialpoliciesvspublicgoodsunderasymmetricinformation
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