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Why Industrial Policies Fail: Limited Commitment

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  • Karp, Larry S
  • Perloff, Jeffrey M
Abstract
The strategic effects of subsidies on output and subsidies on investment differ substantially in dynamic models where a government's commitment ability is limited. Output subsidies remain effective even as the period of commitment vanishes but investment subsidies may become completely ineffective. This difference has been obscured because most existing models of strategic trade policy are static. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Karp, Larry S & Perloff, Jeffrey M, 1995. "Why Industrial Policies Fail: Limited Commitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 887-905, November.
    • Handle: RePEc:ier:iecrev:v:36:y:1995:i:4:p:887-905
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    10. Robert Driskill & Stephen McCafferty, 1989. "Dynamic Duopoly with Output Adjustment Costs in International Markets: Taking the Conjecture out of Conjectural Variations," NBER Chapters, in: Trade Policies for International Competitiveness, pages 125-144, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Henisz, Witold J. & Zelner, Bennet A., 2006. "Interest Groups, Veto Points, and Electricity Infrastructure Deployment," International Organization, Cambridge University Press, vol. 60(1), pages 263-286, January.
    2. Stiegert, Kyle W. & Wang, Shinn-Shyr, 2003. "Imperfect Competition And Strategic Trade Theory: What Have We Learned," Working Papers 14589, International Agricultural Trade Research Consortium.
    3. Bletschacher, Georg, 1991. "Ansätze strategischer Handels- und Industriepolitik: Ein Überblick," Kiel Working Papers 487, Kiel Institute for the World Economy (IfW Kiel).
    4. Gervais, Jean-Philippe & Lapan, Harvey E., 2002. "Time consistent export quotas in an oligopolistic world market," Journal of International Economics, Elsevier, vol. 56(2), pages 445-463, March.
    5. Hamilton, Stephen F. & Stiegert, Kyle W., 2002. "An empirical test of the rent-shifting hypothesis: the case of state trading enterprises," Journal of International Economics, Elsevier, vol. 58(1), pages 135-157, October.
    6. Bletschacher, Georg & Klodt, Henning, 1991. "Braucht Europa eine neue Industriepolitik?," Kiel Discussion Papers 177, Kiel Institute for the World Economy (IfW Kiel).
    7. Reimer, Jeffrey J. & Stiegert, Kyle W., 2006. "Evidence on Imperfect Competition and Strategic Trade Theory," Staff Paper Series 498, University of Wisconsin, Agricultural and Applied Economics.
    8. Gervais, Jean-Philippe, 1999. "Optimal trade policy, time consistency and uncertainty in an oligopsonistic world market," ISU General Staff Papers 1999010108000013564, Iowa State University, Department of Economics.
    9. Donald Hay, 2015. "Industrial Policy in Brazil: a Framework," Discussion Papers 0074, Instituto de Pesquisa Econômica Aplicada - IPEA.
    10. Sonali Deraniyagala & Ben Fine, 2000. "New Trade Theory Versus Old Trade Policy: A Continuing Enigma," Working Papers 102, Department of Economics, SOAS University of London, UK.

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    More about this item

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • 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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