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Losers, Winners and Prisoner's Dilemma in International Subsidy Wars

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  • Garcia Pires, Armando José

Abstract

Two central results in the strategic trade literature are that governments shall support winners and that there is a policy prisoner dilemma in international subsidy wars (i.e. countries have incentives to support local firms but they would be better off by cooperating to not intervene). We show that exactly the contrary holds when asymmetries between firms are endogenous. Specifically, the incentives to support are bigger for loser firms given that intervention can aim at making them winners (competitiveness shifting effects). As a result the countries that host less competitive firms always prefer intervention. We illustrate this with the Airbus-Boeing case.

Suggested Citation

  • Garcia Pires, Armando José, 2006. "Losers, Winners and Prisoner's Dilemma in International Subsidy Wars," CEPR Discussion Papers 5979, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5979
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    Cited by:

    1. Michael Berlemann & Sabine Engelmann & Christian Leßmann & Heinz Schmalholz & Henner Spelsberg & Hendrik Weber, 2007. "Unternehmensnachfolge im sächsischen Mittelstand : Gutachten im Auftrag des Sächsischen Staatsministeriums für Wirtschaft und Arbeit," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 40, May.
    2. Ibsen, Alexander Z., 2009. "The politics of airplane production: The emergence of two technological frames in the competition between Boeing and Airbus," Technology in Society, Elsevier, vol. 31(4), pages 342-349.
    3. Christian Leßmann & Joachim Ragnitz & Beate Schirwitz & Marcel Thum & Susan Kühn & Christian Thater, 2008. "Revolvierende Fonds als Instrument zur Neuausrichtung der Förderpolitik : Gutachten im Auftrag der Sächsischen Landesbank (SAB)," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 44, May.

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    More about this item

    Keywords

    R&d investment; Airbus; Boeing; R&d subsidies; Asymmetric firms;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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