Second-Best Trade Policies, R&D Spillovers and Government (In)ability to Precommit in an Intra-Industry Trade Framework

Kresimir Zigic ()

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: We introduce an intra-industry setup in order to reconsider the consequences of government (in)ability to precommit to its policies when it is constrained to only one policy instrument (second-best policies). This setup nests the standard frameworks of strategic trade policy—the “third-market” and the “home-market” framework. We also analyze how robust the signs of particular policy instruments (R&D subsidies) are when passing from the “second-best” to the “first-best” policy and show that in the considered setup this issue is closely related to the issue of the government commitment. The policy instruments under consideration are import tariffs and export and R&D subsidies, and there are R&D spillovers from the domestic firm to the foreign firm.

Keywords: government commitment; optimal tariffs and R&D subsidies; first-best versus second-best strategic policy; R&D spillovers (search for similar items in EconPapers)
JEL-codes: F13 L11 L13 O31 (search for similar items in EconPapers)
Date: 2010-11
New Economics Papers: this item is included in nep-ino
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp427

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