Losers, Winners and Prisoner's Dilemma in International Subsidy Wars
AbstractTwo central results in the strategic trade literature are that governments shall support winners and that there is a policy prisoner dilemma in international subsidy wars (i.e. countries have incentives to support local firms but they would be better off by cooperating to not intervene). We show that exactly the contrary holds when asymmetries between firms are endogenous. Specifically, the incentives to support are bigger for loser firms given that intervention can aim at making them winners (competitiveness shifting effects). As a result the countries that host less competitive firms always prefer intervention. We illustrate this with the Airbus-Boeing case.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5979.
Date of creation: Dec 2006
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Find related papers by JEL classification:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
- 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:
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- NEP-MIC-2007-01-02 (Microeconomics)
- NEP-PBE-2007-01-02 (Public Economics)
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