A note on the time inconsistency of strategic trade policy

Peter Welzel ()

Open Economies Review, 1992, vol. 3, issue 2, 203-214

Abstract: In a simple three-stage model of an international Cournot duopoly, optimal strategic trade policy is shown to be time inconsistent. If the domestic government first announces a production subsidy, firms then irrevocably commit resources to R&D, and finally play their output game, there is an incentive for the government to revise its ex ante optimal policy once R&D decisions have been made. If private agents anticipate this revision and if the government does not have the power to commit itself to the ex ante optimal policy, a credibility constraint has to be imposed. Copyright Kluwer Academic Publishers 1992

Keywords: commercial policy; strategic trade policy; time inconsistency (search for similar items in EconPapers)
Date: 1992
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DOI: 10.1007/BF01886204

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