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Last One Out Wins: Trade Policy in an International Exit Game

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  • Brainard, S Lael

Abstract

This paper examines the effect of intervention on the order and timing of exit in an international industry with fixed costs and declining demand. A dynamic inconsistency problem arises when policymakers are unable to precommit: they always intervene to prolong the life of the local firm even when this is not socially optimal. The effect of tariff intervention is in all cases to terminate production prematurely and in many cases to reverse the order of exit. Intervention in the absence of recommitment is never first best and actually reduces welfare when the differential between firms' fixed costs is large. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Brainard, S Lael, 1994. "Last One Out Wins: Trade Policy in an International Exit Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 151-172, February.
  • Handle: RePEc:ier:iecrev:v:35:y:1994:i:1:p:151-72
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    Cited by:

    1. Mohammad Amin, 2004. "Time Inconsistency of Trade Policy and Multilateralism," International Trade 0402002, University Library of Munich, Germany.
    2. Kyle Bagwell & Chad P. Bown & Robert W. Staiger, 2016. "Is the WTO Passé?," Journal of Economic Literature, American Economic Association, vol. 54(4), pages 1125-1231, December.
    3. Gervais, Jean-Philippe & LAPAN, HARVEY E, 1998. "Trade Policy And Time Consistency In An Oligopsonistic World Market," ISU General Staff Papers 199811010800001309, Iowa State University, Department of Economics.
    4. Brainard, S. Lael & Martimort, David, 1997. "Strategic trade policy with incompletely informed policymakers," Journal of International Economics, Elsevier, vol. 42(1-2), pages 33-65, February.
    5. Young-Han Kim, 1999. "The Welfare Analysis of Trade Policies: The Optimal Government Intervention Timing under Incomplete Information," International Economic Journal, Taylor & Francis Journals, vol. 13(4), pages 53-70.
    6. Staiger, Robert W., 1995. "International rules and institutions for trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 29, pages 1495-1551 Elsevier.
    7. Brainard, S. Lael & Verdier, Thierry, 1997. "The political economy of declining industries: Senescent industry collapse revisited," Journal of International Economics, Elsevier, vol. 42(1-2), pages 221-237, February.
    8. 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.
    9. Bagwell,K. & Staiger,R.W., 2000. "GATT-think," Working papers 19, Wisconsin Madison - Social Systems.
    10. Stephen Martin & Paola Valbonesi, 2006. "The State Aid Game," "Marco Fanno" Working Papers 0024, Dipartimento di Scienze Economiche "Marco Fanno".
    11. Kyle Bagwell & Robert W. Staiger, 2016. "The Design of Trade Agreements," NBER Working Papers 22087, National Bureau of Economic Research, Inc.
    12. Martin Stephen & Valbonesi Paola, 2008. "Equilibrium State Aid in Integrating Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-39, August.
    13. Kräkel, Matthias, 2010. "Shutdown Contests in Multi-Plant Firms and Governmental Intervention," IZA Discussion Papers 4852, Institute for the Study of Labor (IZA).
    14. Gervais, Jean-Philippe & Lapan, Harvey E., 2002. "Time consistent export quotas in an oligopolistic world market," Journal of International Economics, Elsevier, vol. 56(2), pages 445-463, March.

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