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Export Subsidies as Signals of Competitiveness

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  • Collie, David
  • Hviid, Morten

Abstract

In a Cournot duopoly model of international competition between a domestic and foreign firm, it is shown that when the foreign firm has incomplete information about the marginal cost of the domestic firm then the domestic government can use an export subsidy to signal the competitiveness of its firm. This signaling effect strengthens the usual profit-shifting argument for an export subsidy. The optimal export subsidy in the signaling equilibrium may be twice as large as the optimal profit-sharing export subsidy under complete information. Copyright 1993 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Collie, David & Hviid, Morten, 1993. " Export Subsidies as Signals of Competitiveness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(3), pages 327-339.
  • Handle: RePEc:bla:scandj:v:95:y:1993:i:3:p:327-39
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    Citations

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    Cited by:

    1. Justus Haucap & Christian Wey & Jens Barmbold, 1998. "Location Costs, Product Quality, and Implicit Franchise Contracts," CIG Working Papers FS IV 98-08, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Frank Schuhmacher, "undated". "Strategic Trade Policy under Asymmetric Information about Market Demand," Discussion Paper Serie A 573, University of Bonn, Germany.
    3. Dermot Leahy & J. Peter Neary, 2010. "Oligopoly And Trade," Economics, Finance and Accounting Department Working Paper Series n215-10.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    4. S. Lael Brainard & David Martimort, 1996. "Strategic Trade Policy Design with Asymmetric Information and Public Contracts," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 81-105.
    5. Matschke, Xenia, 2003. "Tariff and quota equivalence in the presence of asymmetric information," Journal of International Economics, Elsevier, pages 209-223.
    6. Sun, Ning & Yao, Hongxin, 2011. "Manipulable behavior in international trade," Economic Modelling, Elsevier, vol. 28(1), pages 60-66.
    7. Furusawa, Taiji & Higashida, Keisaku & Ishikawa, Jota, 2003. "What information is needed for welfare-enhancing policies under international oligopoly?," Japan and the World Economy, Elsevier, pages 31-46.
    8. Sun, Ning & Yao, Hongxin, 2011. "Manipulable behavior in international trade," Economic Modelling, Elsevier, vol. 28(1-2), pages 60-66, January.
    9. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
    10. Pierre-Philippe Combes & Bernard Caillaud & Bruno Jullien, 1997. "Common Market with Regulated Firms," Annals of Economics and Statistics, GENES, pages 65-99.
    11. Dobrin R. Kolev & Thomas J. Prusa, 1997. "Tariff Policy for a Monopolist Under Incomplete Information," NBER Working Papers 6090, National Bureau of Economic Research, Inc.
    12. Matloob Piracha, 2004. "Export Subsidies and Countervailing Duties Under Asymmetric Information," Studies in Economics 0410, School of Economics, University of Kent.
    13. Morasch, Karl, 2003. "Deciding about (de-)centralization of industrial policy: Delegation by a central authority vs. bargaining of regional governments," Working Papers in Economics 2003,3, Bundeswehr University Munich, Economic Research Group.
    14. Aditya Bhattacharjea, 2002. "Infant Industry Protection Revisited," International Economic Journal, Taylor & Francis Journals, pages 115-133.
    15. Mikko Mustonen, 2005. "Signalling cost with investment in compatibility," Netnomics, Springer, vol. 7(1), pages 39-57, April.
    16. Bouët, Antoine & Cassagnard, Patrice, 2013. "Strategic trade policy under asymmetric information with screening," Economic Modelling, Elsevier, vol. 32(C), pages 286-293.
    17. Koska, Onur A. & Long, Ngo Van & Staehler, Frank, 2015. "Foreign Direct Investment as a Signal," MPRA Paper 68025, University Library of Munich, Germany.
    18. Haucap, Justus & Wey, Christian & Barmbold, Jens, 2000. "Location costs, product quality and implicit franchise contracts," Journal of International Economics, Elsevier, pages 69-87.
    19. Kolev, Dobrin R. & Prusa, Thomas J., 1999. "Tariff policy for a monopolist in a signaling game," Journal of International Economics, Elsevier, pages 51-76.

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