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Strategic Trade Policy in the Presence of Consumer Learning
Author(s) -
Wojcik Charlotte
Publication year - 2000
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/1468-0335.00208
Subject(s) - precommitment , subsidy , cournot competition , incentive , economics , microeconomics , government (linguistics) , offset (computer science) , industrial organization , business , market economy , linguistics , philosophy , computer science , programming language
This paper explores the potential role for strategic trade policy when demand is impacted by consumer learning. In a linear Cournot model, the optimal subsidy is shown to be increasing in both the firm‐specific learning and learning spillovers among home firms when firms can precommit; however, when precommitment by firms and/or the government is not possible, strategic behaviour by firms may more than offset the infant industries' incentive for an export subsidy. A calibration exercise illustrates the impact of consumer learning on the optimal subsidies and also demonstrates the sensitivity of the policy prescription.