Does 'Non-Committed' Government Always Generate Lower Social Welfare then its 'Committed' Counter-Part
AbstractWe compare the social welfare generated by a domestic government in two types of policy set-ups: a ‘commitment’ regime in which government sets its policy instrument before the strategic choice by a domestic firm and a ‘non-commitment’ regime where the policy variable is set after the firm’s strategic choice. The government implements strategic trade policy in the form of optimal tariffs under which domestic and foreign firms compete in quantities in an imperfectly competitive domestic market where cost reducing R&D spillovers take place from the domestic to the foreign firm. We show that the ‘non-committed’ government generally achieves a higher welfare and levies a lower optimal tariff than the ‘committed’ government. Moreover, when the domestic government is allowed to use an R&D subsidy, which may or may not be accompanied by the optimal tariff, the resulting optimal subsidies are always positive.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3946.
Date of creation: Jun 2003
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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
This paper has been announced in the following NEP Reports:
- NEP-POL-2003-10-05 (Positive Political Economics)
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- Lommerud, Kjell Erik & Olsen, Trond E. & Straume, Odd Rune, 2006. "Cross border mergers and strategic trade policy with two-part taxation: is international policy coordination beneficial?," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-24, Social Science Research Center Berlin (WZB).
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