Strategic Trade Policy When Firms Have Different Efficiency Levels

Dermot Leahy and Catia Montagna

No 1549, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper we examine optimal strategic trade policy under oligopoly with many home and foreign firms when the firms have different levels of efficiency. The first-best policy involves a structure of firm-specific export subsidies and export taxes in which the government favours the most efficient firms unless the social cost of government funds is sufficiently high. When optimal policy is constrained to a uniform subsidy the optimal policy depends on the relative number of home and foreign firms and the curvature of demand. Deficiencies of the uniform subsidy are examined.

Keywords: Export Subsidies; Heterogeneous Firms; Stategic Trade Policy (search for similar items in EconPapers)
JEL-codes: F12 L13 (search for similar items in EconPapers)
Date: 1997-01
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Citations: View citations in EconPapers (5)

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