Electronic Resource
Berkeley, Calif.
:
Berkeley Electronic Press (now: De Gruyter)
The @B.E. journal of economic analysis & policy
7.2007, 1, art21
ISSN:
1555-0494
Source:
Berkeley Electronic Press Academic Journals
Topics:
Economics
Notes:
We analyze how the cost-effectiveness of R&D influences the incentives for governments to impose export subsidies. Governments first impose an export subsidy, or a tax. After observing export policy, firms invest in cost reducing R&D and subsequently compete in the market. Governments subsidize exports under Cournot competition. Under Bertrand competition and for linear demands and constant marginal costs, export subsidies are positive whenever R&D is sufficiently cost-effective at reducing marginal costs, and negative otherwise. The trade policy reversal found in models without endogenous sunk costs disappears if R&D is sufficiently cost-effective. Thus, output subsidies seem more robust than implied by the recent literature.
Type of Medium:
Electronic Resource
URL:
http://www.bepress.com/bejeap/vol7/iss1/art21
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