IDEAS home Printed from
   My bibliography  Save this article

Endogenous Choice of Subsidy Instruments in Imperfectly Competitive Markets: A Unit Subsidy versus an Ad Valorem Subsidy


  • Nobuo Akai
  • Hikaru Ogawa
  • Yoshitomo Ogawa


This paper analyzes the endogenous choice problem of subsidy instruments as production expansion (export-promotion) policies. We consider a two-region economy in which firms produce a homogeneous good and sell it in a third region. The government in each region provides a production subsidy to the domestic firm in either a unit or an ad valorem form. Our main result is that selection of a unit subsidy is the dominant strategy for each region and it is welfare superior to an ad valorem subsidy, which offers a justification for the unit subsidy assumption made in the existing literature. We explain the intuition behind this result using the properties of the best responses.

Suggested Citation

  • Nobuo Akai & Hikaru Ogawa & Yoshitomo Ogawa, 2014. "Endogenous Choice of Subsidy Instruments in Imperfectly Competitive Markets: A Unit Subsidy versus an Ad Valorem Subsidy," Annals of Economics and Statistics, GENES, issue 113-114, pages 81-98.
  • Handle: RePEc:adr:anecst:y:2014:i:113-114:p:81-98
    DOI: 10.15609/annaeconstat2009.113-114.81

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Haraguchi Junichi & Ogawa Hikaru, 2018. "Leadership in Tax Competition with Fiscal Equalization Transfers," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(3), pages 1-15, July.
    2. Hiroshi Aiura & Hikaru Ogawa, 2019. "Indirect taxes in a cross-border shopping model: a monopolistic competition approach," Journal of Economics, Springer, vol. 128(2), pages 147-175, October.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:adr:anecst:y:2014:i:113-114:p:81-98. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Secretariat General) or (Laurent Linnemer). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.