Why do governments seek restrictions on the use of export subsidies through reciprocal trade agreements such as GATT? With existing arguments, it is possible to understand GATT's restrictions on export subsidies as representing an inefficient victory of the interests of exporting governments over the interests of importing governments. However, to our knowledge, there does not exist a formal theoretical treatment that provides circumstances under which GATT's restrictions on export subsidies can be given a world-wide efficiency rationale. In this paper, we offer one such treatment in the context of a natural monopoly market. We emphasize that subsidy competition between governments can serve to coordinate the entry decisions of firms, finding that consumers in the importing countries may suffer if the coordination afforded exporters by government subsidy programs does more to prevent entry than to promote it. In such circumstances, we show that the existence of export subsidy programs can lead to inefficiencies, and importing countries and the world as a whole can be better off when such programs are banned.
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number
1156.
Length: Date of creation: Apr 1996 Date of revision: Handle: RePEc:nwu:cmsems:1156
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Kyle Bagwell & Robert W. Staiger, 1996.
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1150, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!]
Varian, Hal R, 1980.
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[Downloadable!] (restricted)
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Huck, Steffen & Konrad, Kai A. & Mueller, Wieland, 2000.
"Merger in Contests,"
CESifo Working Paper Series
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Other versions:
Kyle Bagwell & Robert W. Staiger, 2004.
"Subsidy Agreements,"
NBER Working Papers
10292, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)