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Discriminatory procurement policy with cash limits can lower imports: an example

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Author Info
Michele Santoni ()

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Abstract

This paper presents a counterexample to the Miyagiwa (1991) claim that discriminatorygovernment procurement policy is ineffective as a protectionist device, when the goods are alsoconsumed by the private sector. The procurement sector is a homogeneous product Cournot-Nashduopoly, with a home and a foreign firm. The procurement policy takes the form of an ad valorempremium 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 unitelastic, corresponding to cash limits to public expenditure, and providing the home firm is smallerthan the foreign firm. By adding a competitive export sector, the paper also derives sufficientconditions for macroeconomic coordination failures to occur.

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Paper provided by Department of Economics University of Milan Italy in its series Departemental Working Papers with number 2001-03.

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Date of creation: 01 Jan 2001
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Handle: RePEc:mil:wpdepa:2001-03

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Related research
Keywords: Discriminatory government procurement policy; Cash limits; Coordination failures.;

Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

This paper has been announced in the following NEP Reports:

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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)
    Other versions:
  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. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February. [Downloadable!] (restricted)
  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. 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)
  12. Manning, Alan, 1990. "Imperfect Competition, Multiple Equilibria and Unemployment Policy," Economic Journal, Royal Economic Society, vol. 100(400), pages 151-62, Supplemen. [Downloadable!] (restricted)
  13. 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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