Learning by doing, precommitment and infant industry promotion

We examine the implications for strategic trade policy of different assumptions about precommitment in a two-period Cournot oligopoly game with learning by doing. The inability of firms and governments to precommit to future actions encourages strategic behaviour which justifies an optimal first-period export tax relative to the profit-shifting benchmark of an export subsidy. In the linear case the optimal subsidy is increasing in the rate of learning with government precommitment but decreasing in it without, in apparent contradiction to the infant-industry argument. Extensions to active foreign policy, distortionary taxation and Bertrand competition are also considered.N.B. Professor Neary was based at University College Dublin when this article was first published. The full-text of this article is not currently available in ORA. Citation: Leahy, D. & Neary, J. P. (1999). 'Learning by doing, precommitment and infant-industry promotion', Review of Economic Studies, 66(2), 447-474. [The definitive version is available at www.blackwell-synergy.com]