This paper examines optimal strategic trade policy under oligopoly with many home and foreign firms when firms have different levels of efficiency and a trade-off exists between the subsidy bill and firms’ profits. The first-best policy involves a structure of firm-specific export subsidies and export taxes in which the government favours the most efficient firms unless the social cost of funds is sufficiently high. When the policy is constrained to a uniform subsidy, the optimal policy depends on the relative number of home and foreign firms and on the curvature of demand. Deficiencies of the uniform subsidy are examined.
|Name||Dundee Discussion Papers in Economics|
|Publisher||University of Dundee|
- Strategic trade policy
- Heterogeneous firms
- Export subsides