Sustainable infrastructure investment with labor-only production

Charles S. Tapiero, Konstantin Kogan

Research output: Contribution to journalArticle

Abstract

The purpose of this paper is to consider a partial equilibrium model for a sustainable infrastructure investment in a labor-production economy. We consider an inter-temporal Stackelberg game in a "capital primitive" economy where all capital investments are made by a Central Agency (a government). The government is assumed to have a number of objectives including sustainability of the infrastructure investments, while firms are assumed to be myopic, maximizing only current profits and paying taxes as a function of their returns. Both open-loop and closed-loop (feedback) Stackelberg strategies are considered. Based on the analysis of the investment game, some conclusions are drawn regarding the propensity to invest as a function of sustainability constraints, the taxation rates and employment levels. We then show that investments can tend to a constant level and thus strategic government goals of sustainability and employment growth can be planned only if labor costs and the general price index are steady or characterized by a set of conditions ensuring the attainability of the steady-state investment.

Original languageEnglish (US)
Pages (from-to)876-886
Number of pages11
JournalInternational Journal of Production Economics
Volume113
Issue number2
DOIs
StatePublished - Jun 2008

Keywords

  • Infrastructure
  • Investment
  • Stackelberg equilibrium

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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