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Learning by Doing

Author

Listed:
  • D Leahy
  • J.P. Neary

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.

Suggested Citation

  • D Leahy & J.P. Neary, 1995. "Learning by Doing," CEP Discussion Papers dp0251, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0251
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    Cited by:

    1. Neary, J Peter & Leahy, Dermot, 2000. "Strategic Trade and Industrial Policy towards Dynamic Oligopolies," Economic Journal, Royal Economic Society, vol. 110(463), pages 484-508, April.
    2. Vladimir Petkov, 2007. "Infant Firm Subsidization in Industries with Dynamic Structure," Journal of Industry, Competition and Trade, Springer, vol. 7(2), pages 73-93, June.
    3. Willmann, Gerald, 2004. "Pareto gains from trade: a dynamic counterexample," Economics Letters, Elsevier, vol. 83(2), pages 199-204, May.
    4. Herguera, Inigo & Kujal, Praveen & Petrakis, Emmanuel, 2002. "Tariffs, quality reversals and exit in vertically differentiated industries," Journal of International Economics, Elsevier, vol. 58(2), pages 467-492, December.
    5. Dermot Leahy & J. Peter Neary, 2013. "Oligopoly and Trade," Palgrave Macmillan Books, in: Daniel Bernhofen & Rod Falvey & David Greenaway & Udo Kreickemeier (ed.), Palgrave Handbook of International Trade, chapter 7, pages 197-235, Palgrave Macmillan.
    6. Moraga-Gonzalez, Jose Luis & Viaene, Jean-Marie, 2005. "Trade policy and quality leadership in transition economies," European Economic Review, Elsevier, vol. 49(2), pages 359-385, February.
    7. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2008. "Chapter 4: Industrial policy," EEAG Report on the European Economy, CESifo, vol. 0, pages 105-124, February.

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