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Guns and ButterThe Economic Causes and Consequences of Conflict$
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Gregory D. Hess

Print publication date: 2009

Print ISBN-13: 9780262012812

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262012812.001.0001

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Investing in Regimes with Stationary or Roving Bandits

Investing in Regimes with Stationary or Roving Bandits

(p.99) 4 Investing in Regimes with Stationary or Roving Bandits
Guns and Butter

Kai A. Konrad

The MIT Press

This chapter examines the effects on trade in capital and considers investment decision making regimes with either stationary or roving bandits. It provides the Markov perfect equilibrium in these cases and compares the investment incentive in the respective equilibria. It suggests that the investment incentives of a foreign direct investor depend on a number of factors which include the discount rate of the host government. This chapter also identifies the factors that influence the importation of capital which include higher-quality property rights and a lesser ability for the bandit to actually run the venture successfully should he expropriate it.

Keywords:   trade in capital, investment decision making, Markov perfect equilibrium, roving bandits, stationary bandits, importation of capital, foreign direct investor, property rights

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