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Infant industry policy and information revelation

Author

Listed:
  • Asilis, Carlos

    (Georgetown University)

  • Richardson, Carlos

    (University of Otago)

Abstract

We study domestic entry into an established durable good industry under imperfect information. Prior to making a costly entry decision, entrepreneurs observe their true type profitability only with some (common) noise. We consider policy when the government has finer information than firms about the common noise, allowing for two types of well meaning government with different objectives. We show that one government may signal its type with a second best policy to encourage entry. This result provides a rationale for the observed phenomena of governments choosing suboptimal infant industry interventions despite accepted economic wisdom.

Suggested Citation

  • Asilis, Carlos & Richardson, Carlos, 1994. "Infant industry policy and information revelation," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 9(2), pages 209-236.
    • Handle: RePEc:emx:esteco:v:9:y:1994:i:2:p:209-236
    as

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    File URL: https://estudioseconomicos.colmex.mx/index.php/economicos/article/view/277/280
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    References listed on IDEAS

    as
    1. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    2. repec:hoo:wpaper:e-89-4 is not listed on IDEAS
    3. Krueger, Anne O & Tuncer, Baran, 1982. "An Empirical Test of the Infant Industry Argument," American Economic Review, American Economic Association, vol. 72(5), pages 1142-1152, December.
    4. Baldwin, Robert E, 1969. "The Case against Infant-Industry Tariff Protection," Journal of Political Economy, University of Chicago Press, vol. 77(3), pages 295-305, May/June.
    5. Gene M. Grossman & Henrik Horn, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(4), pages 767-787.
    6. Flam, H. & Staiger, R.W., 1989. "Adverse Selection In Credit Markets And Infant Industry Protection," Papers 432, Stockholm - International Economic Studies.
    7. Rodrik, Dani, 1989. "Promises, Promises: Credible Policy Reform via Signalling," Economic Journal, Royal Economic Society, vol. 99(397), pages 756-772, September.
    Full references (including those not matched with items on IDEAS)

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