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International R&D rivalry and industrial strategy without government commitment

Listed author(s):
  • Dermot Leahy
  • J. Peter Neary

We examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfare are higher when government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment thus yields welfare gains (though they are small) but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all.

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File URL: http://hdl.handle.net/10197/1780
File Function: First version, 1995
Download Restriction: no

Paper provided by School of Economics, University College Dublin in its series Working Papers with number 199512.

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Date of creation: Aug 1995
Handle: RePEc:ucn:wpaper:199512
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Web page: http://www.ucd.ie/economics

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