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  • P-ISSN 1738-656X
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한국개발연구. Vol. 34, No. 2, June 2012, pp. 17-40

https://doi.org/10.23895/kdijep.2012.34.2.17

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Externality Cost of Capital Investment in Limited Commitment

Jun sang Lee; Yili Chien

Author & Article History

Manuscript .

Abstract

We study externality costs of capital investment under limited commitment. We solve for the constrained efficient allocation with a limited commitment environment and find positive externality costs of capital investment provided that full-risk-sharing is not feasible. In a decentralized version of limited commitment environment, a one unit increase of capital investment by an agent increases all individuals’ autarky values in the economy and generates externality costs in the economy. This externality cost provides a rationale for positive capital taxation even in the absence of government expenditure. In order to internalize this costs, the government use a positive rate of linear capital tax in the decentralized economy.

Keywords

Capital Investment(자본투자), Capital Taxation(자본세), Limited Commitment(계약의 불완전 이행)

JEL Code

D62, E22, H21

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