Resumen de Industrial policies vs public goods under asymmetric information
Constantino Hevia, Norman Loayza Ojeda, Claudia Meza Cuadra
This paper presents an analytical framework that captures the informational problems and trade-offs that policy makers face when choosing between public goods (e.g., infrastructure) and indus-trial policies (e.g., firm or sector-specific subsidies). The paper first provides a discussion of theliterature on industrial policies. It then presents an illustrative model, where the economy consistsof a set of firms that vary by productivity and a government that can support firms through gen-eral or targeted expenditures. The paper examines the cases of full and asymmetric informationon firm productivity. Working under full information, it describes the first-best allocation of gov-ernment resources among firms according to their productivity. It then introduces uncertainty byrestricting information regarding firm productivity to be private to the firm. The paper developsan optimal contract (which replicates the first-best) consisting of a tax-based mechanism thatinduces firms to reveal their true productivity. As this requires high government capacity, thepaper considers other simpler policies, one of which is the provision of public goods to all firms.The paper concludes that providing public goods is likely to dominate industrial policies undermost scenarios, especially when government capacity is low.
