This paper examines how credit guarantees and government subsidies impact investment in a regime-switching model. We provide new explicit pricing formulas for a general standard asset. Almost all common corporate securities’ prices can be easily derived by the explicit formulas though project cash flows are driven by both a Brownian motion and a two-state Markov chain. We provide a method about how governments should specify a proper tax subsidy standard for a given tax rate to motivate a firm to invest in a project in the way they wish. If the tax subsidy is sufficiently high (low), an overinvestment (underinvestment) occurs. The higher the tax rate, the more significant the overinvestment (underinvestment). We pin down the subsidy amount required for motivating a firm to invest immediately and fix the optimal capital structure with government subsidies.

We examine whether engagement in rent-seeking improves firm value in China. Rent-seeking is defined as a firm's use of resources to establish a relationship with the government to obtain government-controlled resources. We incorporate political rents and associated costs into an analytical framework to examine the relationship between rent-seeking and firm value. Using a sample of non-state-owned firms listed on the Shenzhen Stock Exchange and the Shanghai Stock Exchange from 2007 to 2013, we find evidence of the presence of political rents in the form of government subsidies and evidence of associated costs in the forms of corporate philanthropy and excess management remuneration, which largely explains the insignificant relationship found between rent-seeking and firm value. Our further analysis shows that rent-seeking behavior of firms reduces production efficiency, providing additional evidence to support our thesis that engagement in rent-seeking does not enhance firm value in the Chinese context. In an economy with weak institutions, in particular with weak protection for shareholders, managers and politicians can become rent-seekers and take a considerable share of the economic benefits derived from rent-seeking.

This study summarizes research on farm-, local-, regional-, and macro-level economic effects of ethanol production. Given current production levels, the ethanol production industry annually employees approximately 3,500 workers, pays out nearly $132 million in worker salaries, generates over $110 million in local taxes, and takes in some $2 billion in government incentive payments. Projections for a 60 million gallon per year ethanol plant indicate an annual increase in corn usage of 21 million bushels, a one-time capitalization of $75 million, an increase in local corn prices of between $0.06/bushel and $0.12/bushel, a 54 direct and a 210 indirect jobs created, an increase in local tax revenues of $1.2 million, a decrease in federal commodity program outlays of $30 million, and an increase in ethanol production incentives (federal only) of around $30.5 million.

This paper uses microlevel data from the Agricultural Resource Management Survey to examine the changes in the distributions of household wealth and to assess the role farm subsidies play, among other factors, in affecting these distributions. The empirical analysis relies on the concept of the adjusted Gini coefficient and on fixed-effect regression procedures. Coefficients from fixed-effects estimation indicate a negative correlation between government payments and wealth dispersion, with the effect shifting toward more of a positive relation when government payments were allowed to interact with regional dummies.