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Export Subsidies And The First-Mover (Dis)Advantage

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  • MATLOOB PIRACHA

    (School of Economics, University of Kent, Canterbury, Kent CT2 7NP, United Kingdom)

Abstract

In the presence of home firm's ability to make a cost-reducing investment before or after the government set its subsidy level, this paper analyzes the impact of timing on the optimal policy of the government. We find that under complete information assumption, the firm will overinvest and consequently, the government will over-subsidize, resulting in lower welfare levels than would arise under non-intervention. We extend the model to the case in which the home firm has private information about its own costs, which it may want to signal to the government through its investment choice. We find that under this setup, the low-cost firm overinvests even more than under full information case, making the policy of non-intervention even more attractive.

Suggested Citation

  • Matloob Piracha, 2011. "Export Subsidies And The First-Mover (Dis)Advantage," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 56(01), pages 41-50.
    • Handle: RePEc:wsi:serxxx:v:56:y:2011:i:01:n:s0217590811004080
    DOI: 10.1142/S0217590811004080
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    More about this item

    Keywords

    Subsidies; investment; signaling; F12; F13;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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