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Strategic Trade Policy When Firms Have Different Efficiency Levels

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  • Leahy, Dermot
  • Montagna, Catia

Abstract

In this paper we examine optimal strategic trade policy under oligopoly with many home and foreign firms when the firms have different levels of efficiency. The first-best policy involves a structure of firm-specific export subsidies and export taxes in which the government favours the most efficient firms unless the social cost of government funds is sufficiently high. When optimal policy is constrained to a uniform subsidy the optimal policy depends on the relative number of home and foreign firms and the curvature of demand. Deficiencies of the uniform subsidy are examined.

Suggested Citation

  • Leahy, Dermot & Montagna, Catia, 1997. "Strategic Trade Policy When Firms Have Different Efficiency Levels," CEPR Discussion Papers 1549, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1549
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    References listed on IDEAS

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    1. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, vol. 84(5), pages 1310-1329, December.
    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    3. Hart, Oliver & Moore, John, 1995. "Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining Management," American Economic Review, American Economic Association, vol. 85(3), pages 567-585, June.
    4. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
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    Citations

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    Cited by:

    1. Erling Holmøy, 2003. "Aggregate Industry Behaviour in a Monopolistic Competition Model with Heterogeneous Firms," Discussion Papers 352, Statistics Norway, Research Department.
    2. Derbel, Hatem & Abdelkafi, Rami & Chkir, Ali, 2007. "Impact du commerce extérieur sur la productivité au sein des secteurs en Tunisie : cas de l’industrie manufacturière
      [Impact of foreign trade on productivity within sectors in Tunisia: the case of
      ," MPRA Paper 8533, University Library of Munich, Germany, revised Oct 2007.
    3. Dermot Leahy & Catia Montagna, 1998. "Targeted Strategic Trade Policy with Domestic Cost Heterogeneity," Dundee Discussion Papers in Economics 100, Economic Studies, University of Dundee.
    4. Barros, Pedro P & Nilssen, Tore, 1999. " Industrial Policy and Firm Heterogeneity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(4), pages 597-616, December.

    More about this item

    Keywords

    Export Subsidies; Heterogeneous Firms; Stategic Trade Policy;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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