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Investment scale as a signal in industrial assistance schemes with employment objectives

Lookup NU author(s): Professor Colin Wren

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Abstract

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.

Publication metadata

Author(s): Wren C

Publication type: Article

Publication status: Published

Journal: Economica

Year: 2003

Volume: 70

Issue: 278

Pages: 331-352

ISSN (print): 0013-0427

ISSN (electronic): 1468-0335

Publisher: Wiley-Blackwell

URL: http://dx.doi.org/10.1111/1468-0335.00327

DOI: 10.1111/1468-0335.00327

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