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Does a ‘non-committed’ government always generate lower social welfare than its ‘committed’ counterpart? Strategic trade policy when consumer surplus matters

  • Žigić, Krešimir

We show that social welfare in the setup where the government lacks the full ability to commit to its trade policies may exceed the social welfare when the government possesses full commitment power if consumer surplus is part of the social welfare function. This is never the case in the standard, “third market” framework of strategic trade policy. We provide two examples in which consumer surplus matters: the “home market” and the “intra-industry trade” setup. The policy instruments under consideration are import tariffs and export subsidies and there are R&D spillovers from the domestic to the foreign firm.

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Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 39 (2011)
Issue (Month): 4 ()
Pages: 533-556

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Handle: RePEc:eee:jcecon:v:39:y:2011:i:4:p:533-556
DOI: 10.1016/j.jce.2011.03.006
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

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