2024 North American Winter Meeting, San Antonio, Texas: January, 2024
Optimal Fiscal and Monetary Policy with Investment Spillovers and Endogenous Private Information
Luca Colombo, Gianluca Femminis, Alessandro Pavan
How should firms be incentivized to invest efficiently (e.g., in AI or the supply of smart inputs), when such investments come with spillovers and their profitability depends on uncertain aggregate economic conditions? We show that, under flexible prices, firms can be induced to collect information about aggregate fundamentals efficiency and then use it in society's best interest through a subsidy that resembles a Pigou's correction but accounts for the non-verifiability of firms' acquisition and usage of information. The same fiscal policy also induces efficiency in information acquisition and usage when prices are sticky, under an appropriate monetary policy that induces firms to disregard their endogenous private information when setting prices and only use it for investment purposes.
Versions available:
Preview
