The silver lining of red tape

Ronald Davies

No 201018, Working Papers from School of Economics, University College Dublin

Abstract: An increasing number of international agreements require “nondiscrimination” from their participants, i.e. the government of one country cannot treat foreign firms differently from domestic firms. This is at odds with a government’s desire to benefit its own citizens rather than foreign citizens. I show that the use of red tape – a wasteful application process – can achieve de-facto discrimination. Key to this result is firm heterogeneity since, although the red tape cost is constant across firms, only those sufficiently benefiting from an incentive program will find it worth the cost of applying. If the benefits of targeting subsidies outweigh the burden of red tape on domestic firms, red tape will be used.

Keywords: Red tape; Firm heterogeneity; Production subsidies; Discrimination; Trade regulation; Subsidies; International business enterprises; Barriers to entry (Industrial organization) (search for similar items in EconPapers)
JEL-codes: F2 H2 (search for similar items in EconPapers)
Date: 2010-05
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Citations: View citations in EconPapers (1)

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http://hdl.handle.net/10197/2652 First version, 2010 (application/pdf)

Related works:
Journal Article: The silver lining of red tape (2013)
Working Paper: The Silver Lining of Red Tape (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:201018

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