Learning by doing, precommitment and infant-industry protection

Dermot Leahy and J. Peter Neary

No 199405, Working Papers from School of Economics, University College Dublin

Abstract: This paper examines the implications for strategic trade policy of different assumptions about precommitment. In a dynamic oligopoly game with learning by doing, the optimal first-period subsidy is lower if firms cannot precommit to future output than if they can; and is lower still if the government cannot precommit to future subsidies. In the linear case the optimal subsidy is increasing in the rate of learning with precommitment, but decreasing in it if the government cannot precommit. The infant-industry argument is thus reversed in the absence of precommitment, which has important implications for economic policy in dynamic environments.

Keywords: Strategic trade policy; Precommitment; Learning by doing; Infant industry protection; Time consistency; Commercial policy--Mathematical models; Protectionism--Mathematical models (search for similar items in EconPapers)
JEL-codes: F12 L13 L52 (search for similar items in EconPapers)
Date: 1994-04
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http://hdl.handle.net/10197/1748 First version, 1994 (application/pdf)

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Working Paper: Learning by Doing, Precommitment and Infant-Industry Protection (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:199405

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