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Learning by Doing, Precommitment and Infant-Industry Protection

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  • Leahy, Dermot
  • Neary, J Peter

Abstract

This paper examines the implications for strategic trade policy of different assumptions about precommitment. In a dynamic oligopoly game with learning by doing, the optimal first-period subsidy is lower if firms cannot precommit to future output than if they can; and is lower still if the government cannot precommit to future subsidies. In the linear case the optimal subsidy is increasing in the rate of learning with precommitment, but decreasing in it if the government cannot precommit. The infant-industry argument is thus reversed in the absence of precommitment, which has important implications for economic policy in dynamic environments.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 980.

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Date of creation: Jul 1994
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Handle: RePEc:cpr:ceprdp:980

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Related research

Keywords: Infant-Industry Protection; Learning by Doing; Precommitment; Strategic Trade Policy; Time Consistency;

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Cited by:
  1. Petrakis, Emmanuel & Xepapadeas, Anastasios, 2003. "Location decisions of a polluting firm and the time consistency of environmental policy," Resource and Energy Economics, Elsevier, vol. 25(2), pages 197-214, May.
  2. 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).
  3. Jose Luis Moraga-Gonzalez & Jean-Marie Viaene, 2003. "An Example of Procompetitive Trade Policies," Working Papers 504, Research Seminar in International Economics, University of Michigan.
  4. Mihir A. Desai & James R. Hines Jr., 2004. "Market Reactions to Export Subsidies," NBER Working Papers 10233, National Bureau of Economic Research, Inc.
  5. Jose Luis Moraga & Jean-Marie Viaene, 1999. "Endogenous Quality Effects of Trade Policy," Tinbergen Institute Discussion Papers 99-094/2, Tinbergen Institute.
  6. Dijkstra, Bouwe R., 2007. "An investment contest to influence environmental policy," Resource and Energy Economics, Elsevier, vol. 29(4), pages 300-324, November.
  7. Moraga-Gonzalez, Jose Luis & Jean-Marie Viaene, 2002. "Procompetitive Trade Policies," Royal Economic Society Annual Conference 2002 141, Royal Economic Society.
  8. Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2002. "Tariffs, quality reversals and exit in vertically differentiated industries," Journal of International Economics, Elsevier, vol. 58(2), pages 467-492, December.

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