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Optimal Export Policy for a New-Product Monopoly

  • Kyle Bagwell

A new welfare-enhancing role is identified for a policy of export subsidization in a new-product industry. An export subsidy policy promotes the (rational) perception that a high-quality export can be provided at a relatively low price. Thus, an export subsidy generates a first order benefit to welfare by enabling a high-quality export to be sold at a less-distorted, high price. The subsidy will also introduce distortions into the price of a low-quality export and, when product quality is policy-sensitive, the quality selection process. Since these choices are initially undistorted, however, the export-country welfare loss arising from new distortions is of second order importance.

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File URL: http://www.kellogg.northwestern.edu/research/math/papers/898.pdf
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 898.

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Date of creation: Aug 1990
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Handle: RePEc:nwu:cmsems:898
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  1. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  2. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  3. Gene M. Grossman & Henrik Horn, 1987. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," NBER Working Papers 2159, National Bureau of Economic Research, Inc.
  4. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  5. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
  6. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Grossman, G.N., 1989. "Promoting New Industrial Activities: A Survey Of Recent Arguments And Evidence," Papers 147, Princeton, Woodrow Wilson School - Public and International Affairs.
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