Private Information and Optimal Infant Industry Protection

B Ravikumar, Raymond Riezman and Yuzhe Zhang

No 2022-013, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We study infant industry protection using a dynamic model in which the industry's cost is initially higher than that of foreign competitors. The industry can stochastically lower its cost via learning by doing. Whether the industry has transitioned to low cost is private information. Using a mechanism-design approach, we solve for the optimal protection policy that induces the industry to reveal its true cost. We show that (i) optimal protection, measured by infant industry output, declines over time and is less than that under public information and (ii) eventual viability of the infant industry is not necessary for optimal protection under private information.

Keywords: protection; infant industry; private information; mechanism design (search for similar items in EconPapers)
JEL-codes: D82 F10 F13 O25 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022-05-20, Revised 2025-07-24
New Economics Papers: this item is included in nep-des and nep-mic
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Working Paper: Private Information and Optimal Infant Industry Protection (2022)
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DOI: 10.20955/wp.2022.013

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