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Optimal Export Policy for a New-Product Monopoly

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  • Kyle Bagwell

Abstract

A new welfare-enhancing role is identified for a policy of export subsidization in a new-product industry. An export subsidy policy promotes the (rational) perception that a high-quality export can be provided at a relatively low price. Thus, an export subsidy generates a first order benefit to welfare by enabling a high-quality export to be sold at a less-distorted, high price. The subsidy will also introduce distortions into the price of a low-quality export and, when product quality is policy-sensitive, the quality selection process. Since these choices are initially undistorted, however, the export-country welfare loss arising from new distortions is of second order importance.

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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 898.

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Date of creation: Aug 1990
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Handle: RePEc:nwu:cmsems:898

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  1. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July.
  2. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  3. Grossman, Gene M & Horn, Henrik, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 767-87, November.
  4. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  5. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March.
  6. Grossman, G.N., 1989. "Promoting New Industrial Activities: A Survey Of Recent Arguments And Evidence," Papers 147, Princeton, Woodrow Wilson School - Public and International Affairs.
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Cited by:
  1. Bagwell, Kyle, 1992. "Pricing to Signal Product Line Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 151-74, Spring.
  2. LG. Deidda & F. Adriani, 2010. "Competition and the signaling role of prices," Working Paper CRENoS 201012, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  3. Young-Han Kim, 1999. "The Welfare Analysis of Trade Policies: The Optimal Government Intervention Timing under Incomplete Information," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 53-70.
  4. Dinopoulos, Elias & Livanis, Grigorios T. & West, Carol Taylor, 2005. "How Cool is C.O.O.L.?," Working Papers 15658, University of Florida, International Agricultural Trade and Policy Center.
  5. Desai, Mihir A. & Hines Jr., James R., 2008. "Market reactions to export subsidies," Journal of International Economics, Elsevier, vol. 74(2), pages 459-474, March.
  6. Axel F. A. Adam-Müller & Kit Pong Wong, 2002. "Restricted Export Flexibility and Risk Management with Options and Futures," CoFE Discussion Paper 02-07, Center of Finance and Econometrics, University of Konstanz.
  7. Stephan, Levy, 2004. "Best-price Guarantees as a Quality Signal," MPRA Paper 13466, University Library of Munich, Germany, revised 02 Nov 2004.
  8. Mohd Amin, 2004. "Sensitivity of Tariffs and Quotas: A Signaling Game," International Trade 0401003, EconWPA.
  9. C. Simon Fan & Yifan Hu, 2006. "A Signaling Model of Quality and Export: with application to dumping," DEGIT Conference Papers c011_058, DEGIT, Dynamics, Economic Growth, and International Trade.
  10. F. Adriani & LG. Deidda, 2006. "The Monopolist’s Blues," Working Paper CRENoS 200611, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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