Second-Best Trade Policies, R&D Spillovers and Government (In)ability to Precommit in an Intra-Industry Trade Framework
AbstractWe introduce an intra-industry setup in order to reconsider the consequences of government (in)ability to precommit to its policies when it is constrained to only one policy instrument (second-best policies). This setup nests the standard frameworks of strategic trade policy—the “third-market” and the “home-market” framework. We also analyze how robust the signs of particular policy instruments (R&D subsidies) are when passing from the “second-best” to the “first-best” policy and show that in the considered setup this issue is closely related to the issue of the government commitment. The policy instruments under consideration are import tariffs and export and R&D subsidies, and there are R&D spillovers from the domestic firm to the foreign firm.
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government commitment; optimal tariffs and R&D subsidies; first-best versus second-best strategic policy; R&D spillovers;
Find related papers by JEL classification:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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