Technology and Time Inconsistency | Zendy

Bård Harstad | Zendy

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Technology and Time Inconsistency

Author(s) -

Bård Harstad

Publication year - 2019

Publication title -

journal of political economy

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 21.034

H-Index - 186

eISSN - 1537-534X

pISSN - 0022-3808

DOI - 10.1086/707024

Subject(s) - externality , subsidy , economics , upstream (networking) , maturity (psychological) , microeconomics , dynamic inconsistency , investment (military) , sustainability , industrial organization , market economy , psychology , computer network , developmental psychology , ecology , politics , computer science , political science , law , biology

Policy makers have time-inconsistent preferences if they fear losing power or are endowed with hyperbolic discount factors. Politicians may thus seek to influence future policy choices, for example, by investing in green technologies that motivate later politicians to act sustainably. I show that optimal investment subsidies are larger for technologies that are strategic complements to future investments, that are further upstream in the supply chain, or that are characterized by longer maturity. Time inconsistency can rationalize subsidies at similar levels as market failures such as externalities can. Furthermore, the two are superadditive: time inconsistency and strategic investments are especially important for long-term policies associated with externalities.

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