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Strategic Export Promotion in the Absence of Government Precommitment

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Author Info
Goldberg, Pinelopi Koujianou

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Abstract

Arguments in favor of a strategic trade policy are based on the assumption that the government can credibly precommit to a policy that will not be altered, even if it is suboptimal ex post. This paper examines the implications of relaxing this assumption; to this end, a three-stage game is considered that accounts for the sunk costs associated with capacity installment. It is found that--contrary to common belief--the time-consistent optimal subsidy level is positive, though generally lower than the optimal level with precommitment. This somewhat counterintuitive result is driven by the commitment value of capacity. Copyright 1995 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): 36 (1995)
Issue (Month): 2 (May)
Pages: 407-26
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Handle: RePEc:ier:iecrev:v:36:y:1995:i:2:p:407-26

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  1. Gerda Dewit & Dermot Leahy, 2001. "Rivalry In Uncertain Export Markets: Commitment Versus Flexibility," Economics, Finance and Accounting Department Working Paper Series n1050201, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth. [Downloadable!]
    Other versions:
  2. Praveen Kujal & Juan Ruiz, 2003. "International Trade Policy towards Monopolies and Oligopolies," International Trade 0302002, EconWPA, revised 17 Mar 2003. [Downloadable!]
  3. Gene M. Grossman & Giovanni Maggi, 1997. "Free Trade vs. Strategic Trade: A Peek into Pandora's Box," NBER Working Papers 6211, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. 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)
  5. Mihir A. Desai & James R. Hines Jr., 2004. "Market Reactions to Export Subsidies," NBER Working Papers 10233, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. José Luis Moraga & Jean-Marie Viaene, 1999. "Endogenous Quality Effects of Trade Policy," Tinbergen Institute Discussion Papers 99-094/2, Tinbergen Institute. [Downloadable!]
  7. Roberto Hernan & Praveen Kujal, 2003. "Minimum Quality Levels And Import Tariffs," Economics Working Papers we034817, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  8. J.P Neary & D Leahy, 1998. "Strategic Trade and Industrial PolicyTowards Dynamic Oligopolies," CEP Discussion Papers 0409, Centre for Economic Performance, LSE. [Downloadable!]
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  9. Tsuyoshi Toshimitsu, 1997. "Optimal Export Policy In The Presence Of R&D Investment," Discussion Paper Series 17, School of Economics, Kwansei Gakuin University, revised Sep 1997. [Downloadable!]
  10. J.P Neary & P O'Sullivan, 1998. "Beat 'Em or Join 'Em: Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets," CEP Discussion Papers 0408, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
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