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Losers, Winners and Prisoner's Dilemma in International Subsidy Wars

Armando Garcia Pires ()

No 5979, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Two central results in the strategic trade literature are that governments shall support winners and that there is a policy prisoner dilemma in international subsidy wars (i.e. countries have incentives to support local firms but they would be better off by cooperating to not intervene). We show that exactly the contrary holds when asymmetries between firms are endogenous. Specifically, the incentives to support are bigger for loser firms given that intervention can aim at making them winners (competitiveness shifting effects). As a result the countries that host less competitive firms always prefer intervention. We illustrate this with the Airbus-Boeing case.

Keywords: Airbus; asymmetric firms; Boeing; R&D investment; R&D subsidies (search for similar items in EconPapers)
JEL-codes: F13 H52 L13 L52 O31 (search for similar items in EconPapers)
Date: 2006-12
New Economics Papers: this item is included in nep-mic and nep-pbe
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