ISSN:
1573-708X
Keywords:
commercial policy
;
strategic trade policy
;
time inconsistency
Source:
Springer Online Journal Archives 1860-2000
Topics:
Economics
Notes:
Abstract In a simple three-stage model of an international Cournot duopoly, optimal strategic trade policy is shown to be time inconsistent. If the domestic government first announces a production subsidy, firms then irrevocably commit resources to R&D, and finally play their output game, there is an incentive for the government to revise its ex ante optimal policy once R&D decisions have been made. If private agents anticipate this revision and if the government does not have the power to commit itself to the ex ante optimal policy, a credibility constraint has to be imposed.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/BF01886204
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