Rivalry In Uncertain Export Markets: Commitment Versus Flexibility

Gerda Dewit () and Dermot Leahy
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Gerda Dewit: Economics, National University of Ireland, Maynooth

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: This paper examines optimal trade policy in a two-period oligopoly model, with a home and a foreign firm choosing capital and output. Demand uncertainty, resolved in period two, gives rise to a trade-off between strategic commitment and flexibility in the firms’ investment decisions. When the government can commit to an export subsidy, it may choose to over- or under-subsidise to deter private-sector capital commitment. When the government chooses its trade policy flexibly, the relative value of commitment to the unsubsidised foreign firm is greater than to the subsidised home firm. Finally, a flexible subsidy regime is compared to free trade.

Keywords: Demand Uncertainty; Strategic Commitment; Flexibility; Trade Policy. (search for similar items in EconPapers)
JEL-codes: D80 F12 F13 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2001-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Rivalry in uncertain export markets: commitment versus flexibility (2004)
Working Paper: Rivalry in Uncertain Export Markets: Commitment versus Flexibility (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n1050201

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