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Optimal degree of interagency coordination of subsidy and tariff policies

Author

Listed:
  • Hayashibara, Masayuki
  • Ohkawa, Takao
  • Nomura, Ryoichi
  • Okamura, Makoto

Abstract

A government consists of agencies (departments), each of which tends to pursue its own self-interest. To seek its ultimate goal (public interest), for example, welfare maximization, the government is obliged to coordinate its agencies. We aim to investigate the optimal degree of interagency coordination of subsidy and tariff policies. We assume that the government consists of a subsidy agency, tariff agency, and coordination agency. To investigate this, we construct the following multi-stage game: (1) The coordination agency presents an objective function that reflects the maximization of the ultimate goal to both the subsidy and tariff agencies. (2) Both of these agencies set their levels to maximize the objective. (3) Given their levels, both a domestic firm and foreign firm compete in the domestic market in a Cournot fashion. We establish that no coordination is desirable for both benevolent and consumer-oriented governments, and partial coordination is desirable for a Leviathan (producer-oriented government) when the cost disadvantage of the domestic firm is (not) small.

Suggested Citation

  • Hayashibara, Masayuki & Ohkawa, Takao & Nomura, Ryoichi & Okamura, Makoto, 2024. "Optimal degree of interagency coordination of subsidy and tariff policies," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 327-336.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pa:p:327-336
    DOI: 10.1016/j.iref.2023.07.007
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    More about this item

    Keywords

    Interagency coordination; Public interest; Self-interest; Tariff; Production subsidy;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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