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Learning by Doing, Precommitment and Infant-Industry Protection

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  • Leahy, Dermot
  • Neary, J Peter

Abstract

This paper examines the implications for strategic trade policy of different assumptions about precommitment. In a dynamic oligopoly game with learning by doing, the optimal first-period subsidy is lower if firms cannot precommit to future output than if they can; and is lower still if the government cannot precommit to future subsidies. In the linear case the optimal subsidy is increasing in the rate of learning with precommitment, but decreasing in it if the government cannot precommit. The infant-industry argument is thus reversed in the absence of precommitment, which has important implications for economic policy in dynamic environments.

Suggested Citation

  • Leahy, Dermot & Neary, J Peter, 1994. "Learning by Doing, Precommitment and Infant-Industry Protection," CEPR Discussion Papers 980, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:980
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    Citations

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    Cited by:

    1. Desai, Mihir A. & Hines Jr., James R., 2008. "Market reactions to export subsidies," Journal of International Economics, Elsevier, vol. 74(2), pages 459-474, March.
    2. Jos├ę Luis Moraga Gonzales & Jean-Marie Viaene, 2001. "Procompetitive Trade Policies," CESifo Working Paper Series 597, CESifo Group Munich.
    3. Petrakis, Emmanuel & Xepapadeas, Anastasios, 2003. "Location decisions of a polluting firm and the time consistency of environmental policy," Resource and Energy Economics, Elsevier, vol. 25(2), pages 197-214, May.
    4. Lommerud, Kjell Erik & Olsen, Trond E. & Straume, Odd Rune, 2006. "Cross border mergers and strategic trade policy with two-part taxation: is international policy coordination beneficial?
      [Grenz├╝berschreitende Fusionen und strategische Handelspolitik mit zweiseiti
      ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2006-24, Social Science Research Center Berlin (WZB).
    5. Jose Luis Moraga-Gonzalez & Jean-Marie Viaene, 2003. "An Example of Procompetitive Trade Policies," Working Papers 504, Research Seminar in International Economics, University of Michigan.
    6. Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2002. "Tariffs, quality reversals and exit in vertically differentiated industries," Journal of International Economics, Elsevier, vol. 58(2), pages 467-492, December.
    7. Dijkstra, Bouwe R., 2007. "An investment contest to influence environmental policy," Resource and Energy Economics, Elsevier, vol. 29(4), pages 300-324, November.

    More about this item

    Keywords

    Infant-Industry Protection; Learning by Doing; Precommitment; Strategic Trade Policy; Time Consistency;

    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
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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