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Strategic Trade Policy and Non-Linear Subsidy

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  • YOSHINO,Hisao

Abstract

In a strategic trade policy, it is assumed, in this paper, that a government changes disbursement method so that the reaction function of home firm approaches infinitely close to that of foreign firm. If so, the government is able to reduce the subsidy, in some cases to negative values. The latter cases mean export tax. In the framework of Cournot-Nash equilibrium, Eaton and Grossman[1986] showed that export subsidy is preferable to export tax. In this paper, it is shown that export tax is preferable to export subsidy in some cases in the framework of Cournot-Nash equilibrium, considering the uncertainty in demand. Historically, many economists mentioned non-linear subsidy. However, optimum solution of it has not yet been shown. The optimum solution is shown in this paper.

Suggested Citation

  • YOSHINO,Hisao, 2010. "Strategic Trade Policy and Non-Linear Subsidy," IDE Discussion Papers 228, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper228
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    File URL: https://ir.ide.go.jp/record/2001239/files/IDP000228_001.pdf
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    More about this item

    Keywords

    strategic trade policy|non-linear subsidy|Cournot-Nash equilibrium|Stackelberg equilibrium;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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