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Optimal Trade Policies and Production Technology in Vertically Related Markets *
Author(s) -
Hwang Hong,
Lin YanShu,
Yang YaPo
Publication year - 2007
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2007.00669.x
Subject(s) - production (economics) , economics , variable (mathematics) , economic interventionism , government (linguistics) , function (biology) , vertical integration , returns to scale , industrial organization , scale (ratio) , production function , international economics , microeconomics , mathematics , physics , mathematical analysis , linguistics , philosophy , quantum mechanics , evolutionary biology , politics , political science , law , biology
This paper shows that optimal trade policies for vertically related markets depend crucially on production technology. By employing a production function with variable‐coefficient technology, it shows that return to scale is crucial in determining the direction of government intervention. Therefore, the assumption of fixed‐coefficient production technologies, which has been popular in industrial organization and trade literature when modeling vertically related markets, should be used with caution.