State aids regulation for firms in difficulty : a rationale for production capacity constraints
Rey, Juliette
State aids regulation for firms in difficulty : a rationale for production capacity constraints - 2018.
55
This article analyzes the effect of restructuring state aids on the recipient and the rival’s investment. Those aids are subject to compensatory measures that limit the recipient’s production most of the times, in order to avoid a crowding out effect of rivals’ investment. We try to find a rationale for these constraints by building a model with two firms, a healthy one and a failing one, which both can invest to decrease their cost. We show that production constraints are not always necessary and should be implemented only when there is a high negative externality or when moral hazard is important. Moreover, those constraints are sometimes insufficient to ensure the survival of the firm in difficulty and the investment of the rival.Classification JEL : K29, L51, L53.
State aids regulation for firms in difficulty : a rationale for production capacity constraints - 2018.
55
This article analyzes the effect of restructuring state aids on the recipient and the rival’s investment. Those aids are subject to compensatory measures that limit the recipient’s production most of the times, in order to avoid a crowding out effect of rivals’ investment. We try to find a rationale for these constraints by building a model with two firms, a healthy one and a failing one, which both can invest to decrease their cost. We show that production constraints are not always necessary and should be implemented only when there is a high negative externality or when moral hazard is important. Moreover, those constraints are sometimes insufficient to ensure the survival of the firm in difficulty and the investment of the rival.Classification JEL : K29, L51, L53.
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