Learning by Doing, Precommitment and Infant-Industry Protection

Dermot Leahy and J. Peter Neary

No 980, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines the implications for strategic trade policy of different assumptions about precommitment. In a dynamic oligopoly game with learning by doing, the optimal first-period subsidy is lower if firms cannot precommit to future output than if they can; and is lower still if the government cannot precommit to future subsidies. In the linear case the optimal subsidy is increasing in the rate of learning with precommitment, but decreasing in it if the government cannot precommit. The infant-industry argument is thus reversed in the absence of precommitment, which has important implications for economic policy in dynamic environments.

Keywords: Infant-Industry Protection; Learning by Doing; Precommitment; Strategic Trade Policy; Time Consistency (search for similar items in EconPapers)
JEL-codes: F12 L13 L52 (search for similar items in EconPapers)
Date: 1994-07
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Citations: View citations in EconPapers (8)

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Working Paper: Learning by doing, precommitment and infant-industry protection (1994)
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