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Last One Out Wins: Trade Policy in an International Exit Game

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Author Info
Brainard, S Lael
Abstract

This paper examines the effect of intervention on the order and timing of exit in an international industry with fixed costs and declining demand. A dynamic inconsistency problem arises when policymakers are unable to precommit: they always intervene to prolong the life of the local firm even when this is not socially optimal. The effect of tariff intervention is in all cases to terminate production prematurely and in many cases to reverse the order of exit. Intervention in the absence of recommitment is never first best and actually reduces welfare when the differential between firms' fixed costs is large. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 35 (1994)
Issue (Month): 1 (February)
Pages: 151-72
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Handle: RePEc:ier:iecrev:v:35:y:1994:i:1:p:151-72

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  1. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, EconWPA. [Downloadable!]
  2. Kyle Bagwell & Robert W. Staiger, 2000. "GATT-Think," NBER Working Papers 8005, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Kyle Bagwell & Robert W. Staiger, 2002. "GATT-think," Discussion Papers 0102-39, Columbia University, Department of Economics. [Downloadable!]
  3. Stephen Martin & Paola Valbonesi, 2006. "The State Aid Game," "Marco Fanno" Working Papers 0024, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
  4. S. Lael Brainard & Thierry Verdier, 1993. "The Political Economy of Declining Industries: Senescent Industry Collapse Revisited," NBER Working Papers 4606, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Young-Han Kim, 1999. "The Welfare Analysis Of Trade Policies: The Optimal Government Intervention Timing Under Incomplete Information," International Economic Journal, Korean International Economic Association, vol. 13(4), pages 53-70, December. [Downloadable!] (restricted)
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