Export market correlation and strategic trade policy

Mahmudul Anam () and Shin-Hwan Chiang ()

Canadian Journal of Economics, 2000, vol. 33, issue 1, 41-52

Abstract: In the traditional models of strategic trade policy pioneered by Brander and Spencer, exports of the domestic firm, engaged in a Cournot-Nash competition with the foreign firm in a neutral market, must be subsidized to maximize national welfare. We demonstrate that when the firms play the Cournot-Nash game in two stochastic and positively correlated markets, it may be optimal to tax exports to the more volatile market while subsidizing it in the other. The policy combination reduces the amplitude of aggregate profit and raises the utility of the risk-averse firm in a manner similar to the theory of portfolio choice.

JEL-codes: D18 F12 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (4)

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