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Investment Scale as a Signal in Industrial Assistance Schemes with Employment Objectives
Author(s) -
Wren Colin
Publication year - 2003
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/1468-0335.00327
Subject(s) - investment (military) , welfare , scale (ratio) , government (linguistics) , capital (architecture) , economics , business , labour economics , industrial organization , market economy , philosophy , physics , archaeology , quantum mechanics , politics , political science , law , history , linguistics
The paper examines the implications of asymmetric information for the existence and efficiency of automatic industrial assistance schemes with employment objectives, based on UK regional policy experience. Firms differ in productivities and factor intensities, about which the government is uninformed. The more capital‐intensive firms generate few jobs but implement larger project scales, and the use of this signal for the design of efficient assistance contracts is analysed. The fixed‐rate investment grant used in UK regional policy is found to be poor performing, and is welfare‐dominated by contracts in the grant amount. Assistance contracts specifying both the grant amount and rate may be preferred.