21 research outputs found
Government policy towards multi-national corporations
We analyze an environment with asymmetric information where a country tries to attract a multi-national corporation. The country can use both taxes and grants to meet its objective of maximizing net revenues. We show that when the country has private information it can often convey it via its choice of a tax-grant pair. When the tax rates are unbounded the country is able to extract the full surplus. The existence of an upper bound can in some cases reduce the payoff to a stronger country.Foreign Direct Investment
Optimal policy for FDI incentives : an auction theory approach
A multinational corporation’s (MNC) entry into a host country brings benefits to the
economy of that country, some direct (such as increasing production and employment) and
some indirect (such as productivity spin-off). Governments that view MNCs as engines for
growth and regional development have begun to encourage the flow of foreign investment
into their country in hopes of increased local employment, market production and export
capacity. MNCs consider first the maximization of profit when selecting a site to establish
their subsidiaries. An MNC examines possible investment sites and indicates those that are
best fitted for the investment. The countries that remain at this stage are similar in terms of
their economic characteristics, and they compete with each other for receiving the foreign
investment.
In this paper we use tools from auction theory to analyze the competition between
host countries and MNCs and investigate the existence of Nash equilibrium strategies. The
characteristics of this equilibrium are considered and assessed.
We developed a general model for examining the incentive competition between two
countries and then apply it for several subgroups according to the number of MNCs and the
availability of information. It turns out that the characteristics of the equilibrium depend on
the number of MNCs as well as on the structure of their contribution to the host country
economy.peer-reviewe
Government policy towards multi-national corporations
We analyze an environment with asymmetric information where a country tries to attract a multi-national corporation. The country can use both taxes and grants to meet its objective of maximizing net revenues. We show that when the country has private information it can often convey it via its choice of a tax-grant pair. When the tax rates are unbounded the country is able to extract the full surplus. The existence of an upper bound can in some cases reduce the payoff to a stronger country
All-pay auctions with variable rewards
Available online from Blackwell SynergyWe study all–pay auctions with variable rewards under incomplete information. In standard models, a reward depends on a bidder’s privately known type; however, in our model it is also a function of his bid. We show that in such models there is a potential for paradoxical behavior where a reduction in the rewards or an increase in costs may increase the expected sum of bids or alternatively the expected highest bid
The Optimal Policy Combination of the Minimum Wage and the Earned Income Tax Credit
This paper evaluates the consequences of minimum wage (MW) and earned income tax credit (EITC) in a model with heterogeneous costs of investment in human capital. Our model studies the effects of a MW and an EITC on employment, productivity, and total output for two types of groups: those with a low cost of acquiring human capital and a long horizon of earnings (Type Ys); and those with a high cost of acquiring human capital and a short horizon of earnings (Type Os). We assume that Type Ys consider investing in human capital while Type Os have a certain predetermined level of human capital and do not consider changing it. Our model suggests that a government might consider imposing a MW exclusively for Type Y individuals and an EITC exclusively for Type O individuals. Some of the best effects of each policy would therefore be obtained and some of the worst consequences would be avoided.