International R&D Rivalry and Industrial Strategy without Government Commitment |
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| Authors: | Dermot Leahy J Peter Neary |
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| Institution: | Leahy. Neary: University College Dublin, Belfield, Dublin 4, Ireland. Tel: (+353) 1–706 7620/8334, Fax: (+353) 1–283 0068;Email: . Comments from a referee and from seminar participants at Copenhagen Business School. thc University of Warwick, the Jrish Economic Association Annual Conference, the GREQAM Conference in Aix-en-Provencc, and EEA 95 in Prague are gratefully acknowledged. The second author's work forms part of the International Economic Performance Programme of the Centre for Economic Performance, London School of Economics. An earlicr version was circulated as CEPR Discussion Paper no. 1199 |
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| Abstract: | We examine optimal industrial and trade policies in a series of dynamic oligopoly games in which a home and a foreign firm compete in R&D and output. Alternative assumptions about the timing of moves and the ability of agents to commit intertemporally are considered. We show that the home export subsidy, R&D subsidy and welfarc are higher when government commitment is credible than in the dynamically consistent equilibrium without commitment. Commitment thus yields welfare gains (though they are small) but so does unanticipated reneging, whereas reneging which is anticipated by firms yields the lowest welfare of all. |
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