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Economic Integration and Investment Incentives in Regulated Industries

Auriol, Emmanuelle and Biancini, Sara (2009) Economic Integration and Investment Incentives in Regulated Industries. TSE Working Paper, n. 09-039

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The paper studies the impact of market integration on investment
incentives in non-competitive industries. It distinguishes between investment in transportation and production cost-reducing technologies. Each domestic firm is controlled by a national regulator in a common market made of two countries. When public funds are costly, and production costs in the two countries are not very different, business stealing effect decreases welfare in both countries. Welfare increases in both countries when the difference in production costs is large enough. Market integration tends to increase the level of sustainable investment in costreducing technology compared to autarky. This is in contrast with the systematic underinvestment problem arising for transportation facilities. Free-riding reduces the incentives to invest in these public-good components, while business-stealing reduces the capacity for financing new investment.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2009
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Jan 2012 06:00
Last Modified: 05 Jun 2020 09:38
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