Does a 'non-committed' government always generate lower social welfare than its 'committed' counterpart? Strategic trade policy when consumer surplus matters

0368801 - NHÚ 2012 RIV US eng J - Journal Article
Žigić, Krešimir
Does a 'non-committed' government always generate lower social welfare than its 'committed' counterpart? Strategic trade policy when consumer surplus matters.
Journal of Comparative Economics. Roč. 39, č. 4 (2011), s. 533-556. ISSN 0147-5967. E-ISSN 1095-7227
R&D Projects: GA MŠMT LC542
Institutional research plan: CEZ:AV0Z70850503
Keywords : government commitment * social welfare * optimal tariffs and export subsidies
Subject RIV: AH - Economics
Impact factor: 1.028, year: 2011

We show that social welfare in the setup where the government lacks the full ability to commit to its trade policies may exceed the social welfare when the government possesses full commitment power if consumer surplus is part of the social welfare function. This is never the case in the standard, "third market" framework of strategic trade policy. We provide two examples in which consumer surplus matters: the "home market" and the "intraindustry trade" setup. The policy instruments under consideration are import tariffs and export subsidies and there are R&D spillovers from the domestic to the foreign firm.
Permanent Link: http://hdl.handle.net/11104/0203043