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Crunch time: the optimal policy to avoid the "Announcement Effect" when terminating a subsidy

[working paper]

Gürtler, Marc; Sieg, Gernot

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Corporate Editor Technische Universität Braunschweig, Department Wirtschaftswissenschaften, Institut für Finanzwirtschaft
Abstract "We are considering for examination an Irreversible Investment under Uncertainty, subsidized by the government. If the government announces the termination of a form of subsidization, investors may decide to realize their investment in order to obtain the subsidy. These investors might have postponed an investment if future payment were assured. Depending on the degree of uncertainty and the time preference, the termination of said subsidy may cost the government more in toto than granting the subsidy on a continuing basis. We would like to show that a better strategy is to cut the subsidy in parts rather than terminate the subsidy in its entirety." [author's abstract]
Classification Financial Planning, Accountancy; Economic Policy
Free Keywords irreversibility; investments; announcement effect; subsidies
Document language English
Publication Year 2006
City Braunschweig
Page/Pages 10 p.
Series IF Working Paper Series, FW24V2
Licence Deposit Licence - No Redistribution, No Modifications
data provider This metadata entry was indexed by the Special Subject Collection Social Sciences, USB Cologne