Strategic Trade Policy and Non-Linear Subsidy
by YOSHINO Hisao
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 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.
Keywords: strategic trade policy, non-linear subsidy, Cournot-Nash equilibrium, Stackelberg equilibrium
JEL classification: F12, F13, L52
Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.