Permanent versus Temporary Infant Industry Assistance
This paper develops a two-period model in which dynamic external economies, in the form of learning-by-doing spillovers, provide the rationale for infant industry assistance. The incentive effects of permanent and temporary assistance are then examined by introducing firm effort into the learning process. Under conditions of symmetric information, it is shown that temporary assistance is optimal. Under conditions of asymmetric information, it is shown that permanent assistance is optimal if the policymaker can commit in period one to subsidies in period two. Copyright 1995 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Volume (Year): 63 (1995)
Issue (Month): 4 (December)
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