A Public Firm's R&D Policy and Trade Liberalization
AbstractThis paper studies a public firm's incentive to raise its productive efficiency by undertaking cost-reducing R&D investment when it competes against a foreign private firm. Our focus is to ravel out how a decrease in an importing tariff levied on foreign goods affects this investment level inter alia. We show that when the government imposes non-negative tariffs, a tariff reduction lowers the R&D investment, irrespective of whether the public firm has downward or upward sloping reaction curve. Namely, R&D investment conducted by the public firm is substitutable to an importing tariff. Furthermore, under a linear demand assumption, it is concluded that a tariff reduction necessarily enhances world welfare if both R&D investment and tariffs are set to domestic welfare-maximizing levels. More strict assumptions on marginal cost and R&D cost function make complete trade liberalization desirable from the viewpoint of world welfare.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28173.
Date of creation: Aug 2010
Date of revision:
Mixed Oligopoly; R&D; Trade Liberalization;
Find related papers by JEL classification:
- L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-30 (All new papers)
- NEP-INO-2011-01-30 (Innovation)
- NEP-INT-2011-01-30 (International Trade)
- NEP-PBE-2011-01-30 (Public Economics)
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