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Optimal Export Policy for a New-Product Monopoly

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  • Bagwell, Kyle

Abstract

A new welfare-enhancing role is identified for a policy of export subsidization in a new-product industry. An export-subsidy policy promotes the (rational) perception that a high-quality export can be provided at a relatively low price. Thus, an export subsidy generates a first-order benefit to welfare by enabling a high-quality export to be sold at a less-distorted high price. The subsidy will also introduce distortions into the price of a low-quality export and the quality-selection process. Since these choices are initially undistorted, however, the export-country welfare loss arising from new distortions is of second-order importance. Copyright 1991 by American Economic Association.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 81 (1991)
Issue (Month): 5 (December)
Pages: 1156-69

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Handle: RePEc:aea:aecrev:v:81:y:1991:i:5:p:1156-69

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  1. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
  2. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  3. Grossman, G.N., 1989. "Promoting New Industrial Activities: A Survey Of Recent Arguments And Evidence," Papers 147, Princeton, Woodrow Wilson School - Public and International Affairs.
  4. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  5. Grossman, Gene M & Horn, Henrik, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 767-87, November.
  6. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March.
  7. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
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