Endogenous Choice of Subsidy Instruments in Imperfectly Competitive Markets: A Unit Subsidy versus an Ad Valorem Subsidy

Nobuo Akai, Hikaru Ogawa and Yoshitomo Ogawa

Annals of Economics and Statistics, 2014, issue 113-114, 81-98

Abstract: This paper analyzes the endogenous choice problem of subsidy instruments as production expansion (export-promotion) policies. We consider a two-region economy in which firms produce a homogeneous good and sell it in a third region. The government in each region provides a production subsidy to the domestic firm in either a unit or an ad valorem form. Our main result is that selection of a unit subsidy is the dominant strategy for each region and it is welfare superior to an ad valorem subsidy, which offers a justification for the unit subsidy assumption made in the existing literature. We explain the intuition behind this result using the properties of the best responses.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.jstor.org/stable/10.15609/annaeconstat2009.113-114.81 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2014:i:113-114:p:81-98

DOI: 10.15609/annaeconstat2009.113-114.81

Access Statistics for this article

Annals of Economics and Statistics is currently edited by Laurent Linnemer

More articles in Annals of Economics and Statistics from GENES Contact information at EDIRC.
Bibliographic data for series maintained by Secretariat General () and Laurent Linnemer ().