IDEAS home Printed from
   My bibliography  Save this article

Infant Industry Protection Revisited


  • Aditya Bhattacharjea


In 1791, Alexander Hamilton suggested that assuring protection to domestic entrants Could pre-empt entry-degterrence by foreign firms. This paper reformulates his Argument in game-theoretic terms with asymmetric cost information, imposing the Requirement that both the foreign firm's threat and the home governments's promise of Protection should be credible. It derives a simple optimal tariff formula that depends Only on the expectation of foreign costs. It then shows that this tariff can lead to Welfare-decreasing entry, but only if thee foreign is relatively inefficient. However, If the formula is applied with dynamic consistency, and is rationally anticipated by both foreign and domestic firms, it prevents foreign entry-deterrence and improves deomestic welfare. [F13, 019]

Suggested Citation

  • Aditya Bhattacharjea, 2002. "Infant Industry Protection Revisited," International Economic Journal, Taylor & Francis Journals, vol. 16(3), pages 115-133.
  • Handle: RePEc:taf:intecj:v:16:y:2002:i:3:p:115-133 DOI: 10.1080/10168730200000024

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April.
    2. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    3. 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.
    4. Dixit, Avinash, 1988. "Anti-dumping and countervailing duties under oligopoly," European Economic Review, Elsevier, vol. 32(1), pages 55-68, January.
    5. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-389, August.
    6. Neary, J. Peter, 1994. "Cost asymmetries in international subsidy games: Should governments help winners or losers?," Journal of International Economics, Elsevier, vol. 37(3-4), pages 197-218, November.
    7. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
    8. 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.
    9. Qiu, Larry D, 1995. "Strategic Trade Policy under Uncertainty," Review of International Economics, Wiley Blackwell, vol. 3(1), pages 75-85, February.
    10. Gresik, Thomas A. & Nelson, Douglas R., 1994. "Incentive compatible regulation of a foreign-owned subsidiary," Journal of International Economics, Elsevier, vol. 36(3-4), pages 309-331, May.
    11. Cooper, David J & Garvin, Susan & Kagel, John H, 1997. "Adaptive Learning vs. Equilibrium Refinements in an Entry Limit Pricing Game," Economic Journal, Royal Economic Society, vol. 107(442), pages 553-575, May.
    12. Davies, Stephen W. & McGuinness, Anthony J., 1982. "Dumping at less than marginal cost," Journal of International Economics, Elsevier, vol. 12(1-2), pages 169-182, February.
    13. Raff, Horst, 1994. "Incentive-compatible regulation of foreign-owned subsidiaries: A tax simulation for the Jamaican bauxite industry," Journal of Development Economics, Elsevier, vol. 45(2), pages 339-364, December.
    14. Collie, David R & Hviid, Morten, 1999. "Tariffs as Signals of Uncompetitiveness," Review of International Economics, Wiley Blackwell, vol. 7(4), pages 571-579, November.
    15. Herander, Mark G & Kamp, Brad, 1999. "Tariff Policy and Entry with Cost-Based Informational Asymmetries," Economic Inquiry, Western Economic Association International, vol. 37(1), pages 60-73, January.
    16. Bhattacharjea, Aditya, 1995. "Strategic tariffs and endogenous market structures: Trade and industrial policies under imperfect competition," Journal of Development Economics, Elsevier, vol. 47(2), pages 287-312, August.
    17. Collie, David, 1992. "Export Subsidies, Entry Deterrence and Countervailing Tariffs," The Manchester School of Economic & Social Studies, University of Manchester, vol. 60(2), pages 136-151, June.
    18. Donald J. Wright, 1995. "Incentives, Protection, and Time Consistency," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 929-938, November.
    19. Collie, David & Hviid, Morten, 1993. " Export Subsidies as Signals of Competitiveness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(3), pages 327-339.
    20. Kolev, Dobrin R. & Prusa, Thomas J., 1999. "Tariff policy for a monopolist in a signaling game," Journal of International Economics, Elsevier, vol. 49(1), pages 51-76, October.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, November.
    2. Delia Iona┬║cu & Kresimir Zigic, 2005. "Strategic Tariff Protection, Market Conduct, and Government Commitment Levels in Developing Economies," CERGE-EI Working Papers wp249, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:16:y:2002:i:3:p:115-133. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.