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Was Alexander Hamilton Right? Limit-Pricing Foreign Monopoly And Infant-Industry Protection

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  • Aditya Bhattacharjea

    (Delhi School of Economics)

Abstract

In 1791, Alexander Hamilton put forward an argument for infant-industry protection based on the need to overcome the entry-deterring behaviour of foreign monopolists. This paper recasts Hamilton's argument as a model of strategic trade policy under asymmetric information, and examines the credibility and time-consistency of such protection, and the intertemporal welfare trade-offs it involves. It finds that while Hamilton's prescription is valid for a particular case, it is not robust, and the optimal policy might instead involve a commitment not to protect the domestic industry.

Suggested Citation

  • Aditya Bhattacharjea, 1998. "Was Alexander Hamilton Right? Limit-Pricing Foreign Monopoly And Infant-Industry Protection," Working papers 55, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:55
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