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Discriminatory Procurement Policy with Cash Limits

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Michele Santoni ()

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Abstract

This paper presents a counterexample to the Miyagiwa ((1991) American Economic Review 81, 1320–1328) claim that discriminatory government procurement policy is ineffective as a protectionist device, when the goods are also consumed by the private sector. The procurement sector is a homogeneous product Cournot–Nash duopoly, with a home and a foreign firm. The procurement policy takes the form of an ad valorem premium over the import price. If both the firms play the output game in strategic complements, procurement policy can lower imports. This possibility arises when the product demand is unit elastic, corresponding to cash limits to public expenditure, and providing the home firm is smaller than the foreign firm. By adding a competitive export sector, the paper also derives sufficient conditions for macroeconomic coordination failures to occur. Copyright Kluwer Academic Publishers 2002

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File URL: http://hdl.handle.net/10.1023/A:1012211812485
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Publisher Info
Article provided by Springer in its journal Open Economies Review.

Volume (Year): 13 (2002)
Issue (Month): 1 (January)
Pages: 27-45
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Handle: RePEc:kap:openec:v:13:y:2002:i:1:p:27-45

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Related research
Keywords: discriminatory government procurement policy; cash limits; coordination failures;

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  1. Dixon, Huw David & Rankin, Neil, 1994. "Imperfect Competition and Macroeconomics: A Survey," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 171-99, April. [Downloadable!] (restricted)
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  2. Holmlund, Bertil, 1997. "Macroeconomic Implications of Cash Limits in the Public Sector," Economica, London School of Economics and Political Science, vol. 64(253), pages 49-62, February. [Downloadable!] (restricted)
  3. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  4. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May. [Downloadable!] (restricted)
  5. Breton, Albert & Salmon, Pierre, 1996. "Are Discriminatory Procurement Policies Motivated by Protectionism?," Kyklos, Blackwell Publishing, vol. 49(1), pages 47-68.
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  6. Hooker, Mark A & Knetter, Michael M, 1997. "The Effects of Military Spending on Economic Activity: Evidence from State Procurement Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 400-421, August.
  7. Rankin, Neil, 1995. "Money in Hart's model of imperfect competition," European Journal of Political Economy, Elsevier, vol. 11(3), pages 557-575, September. [Downloadable!] (restricted)
  8. De Fraja, Gianni & Hartley, Keith, 1996. "Defence Procurement: Theory and UK Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 70-88, Winter.
  9. C. Monica Capra & Charles A. Holt, 1999. "Coordination," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 630-636, January.
  10. Santoni, Michele, 1996. "Union-Oligopoly Sequential Bargaining: Trade and Industrial Policies," Oxford Economic Papers, Oxford University Press, vol. 48(4), pages 640-63, October. [Downloadable!] (restricted)
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  11. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October. [Downloadable!] (restricted)
  12. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August. [Downloadable!] (restricted)
  13. Manning, Alan, 1990. "Imperfect Competition, Multiple Equilibria and Unemployment Policy," Economic Journal, Royal Economic Society, vol. 100(400), pages 151-62, Supplemen. [Downloadable!] (restricted)
  14. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, vol. 67(3), pages 349-367, March. [Downloadable!] (restricted)
  15. Miyagiwa, Kaz, 1991. "Oligopoly and Discriminatory Government Procurement Policy," American Economic Review, American Economic Association, vol. 81(5), pages 1320-28, December. [Downloadable!] (restricted)
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