The failure of strategic industrial policies due to manipulation by firms

Karp, Larry S.; Perloff, Jeffrey M.

doi:10.1016/1059-0560(95)90051-9

Cited by 22 publications

(43 citation statements)

References 22 publications

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“…Clearly, if R&D is ineffective, there is no cost to the government's inability to commit and so W S exceeds W F . However, when R&D is effective then, as Karp and Perloff (1995), O'Sullivan (1995) and Grossman and Maggi (1997) have shown, over-investment by the home firm with a view to manipulating the export subsidy can lower welfare relative to free trade.…”

Section: Comparing Welfare Across Equilibriamentioning

confidence: 99%

“…In this three-stage game, firms first choose their R&D levels, then the government chooses its subsidy, and finally firms choose their output levels. This game has been considered by Karp and Perloff (1995), O'Sullivan (1995) and Grossman and Maggi (1997).…”

Section: The Modelmentioning

confidence: 99%

“…The effects of asymmetries between firms in similar models are considered in Neary (1994), Karp and Perloff (1995) and Leahy and Neary (1998). 14.…”

Section: Comparing Welfare Across Equilibriamentioning

confidence: 99%

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Beat 'em or Join 'em? Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets

Neary

O’Sullivan

1999

Scandinavian J Economics

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This paper compares adversarial with cooperative industrial and trade policies in a dynamic oligopoly game in which a home and foreign firm compete in R&D and output and, because of spillovers, each firm benefits from the other's R&D. When the government can commit to an export subsidy, such a policy raises welfare relative to cooperation, except when R&D is highly effective and spillovers are near-complete. Without commitment, however, subsidisation may yield welfare levels much lower than cooperation and lower even than free trade, though qualifications to the dangers from no commitment are noted.

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Section: Comparing Welfare Across Equilibriamentioning

confidence: 99%

Section: The Modelmentioning

confidence: 99%

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Beat 'em or Join 'em? Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets

Neary

O’Sullivan

1999

Scandinavian J Economics

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“…The model we discuss here is similar in structure to Grossman and Maggi (1998) in which firms choose capital and output and the government chooses an export subsidy. Goldberg (1995) and Karp and Perloff (1995) adopt a similar approach. In Neary and O'Sullivan (1999) the firms choose R&D and output while the government chooses an export subsidy.…”

Section: The Modelmentioning

confidence: 99%

Rivalry in uncertain export markets: commitment versus flexibility

Dewit

Leahy

2004

Journal of International Economics

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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. Firms' investment timing is endogenous and can be manipulated by the home government, which sets a subsidy before firms decide when to invest. We show that when the government wishes to manipulate investment timing, it will choose its policy to deter investment commitment by the home or the foreign firm. D

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“…Brander notes that for this case a number of different authors have found that the optimal investment subsidy is positive irrespective of whether competition is Cournot or Bertrand, and he conjectures from this that R&D subsidies may be more robust than export subsidies as strategic policy tools. 7 See, for example, Goldberg (1995), Karp and Perloff (1995), Leahy and Neary (1996), Grossman and Maggi (1998), and Neary and O'Sullivan (1999). Leahy and Neary (1999b) show how these losses can be minimised by adjusting policies at early stages to compensate for the inability to pre-commit to policies at later stages.…”

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confidence: 99%

What Should Governments Do?

1998

World Development Report 1998/1999

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I consider the implications of recent research for R&D policy in developing countries. Typical new growth models, which assume free entry and no strategic behaviour by R&D producers, are less appropriate for policy guidance than strategic oligopoly models. But the latter have ambiguous implications for targeted R&D subsidies, and caution against the anti-competitive effects of research joint ventures. A better policy is to raise the economy-wide level of research expertise. This avoids the need for governments to pick winners, is less prone to capture, and dilutes the strategic disincentive to undertake R&D with unappropriable spillovers.

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The failure of strategic industrial policies due to manipulation by firms

Cited by 22 publications

References 22 publications

Beat 'em or Join 'em? Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets

Beat 'em or Join 'em? Export Subsidies versus International Research Joint Ventures in Oligopolistic Markets

Rivalry in uncertain export markets: commitment versus flexibility

What Should Governments Do?

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