TY  - JOUR
AU  - Bagwell,Kyle
AU  - Staiger,Robert W.
TI  - Strategic Export Subsidies and Reciprocal Trade Agreements: The Natural Monopoly Case
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5574
PY  - 1996
Y2  - May 1996
UR  - http://www.nber.org/papers/w5574
L1  - http://www.nber.org/papers/w5574.pdf
N1  - Author contact info:
Kyle Bagwell
Department of Economics
Stanford University
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
Tel: (650) 723-3251
E-Mail: kbagwell@stanford.edu

Robert W. Staiger
Department of Economics
The University of Wisconsin
1180 Observatory Drive
Madison, WI  53705
Tel: 608/262-2265
Fax: 608/263-3876
E-Mail: rstaiger@wisc.edu
AB  - Why do governments seek restrictions on the use of export subsidies through reciprocal trade agreements such as GATT?  With existing arguments, it is possible to understand GATT's restrictions on export subsidies as representing an inefficient victory of the interests of exporting governments over the interests of importing governments.  However, to our knowledge, there does not exist a formal theoretical treatment that provides circumstances under which GATT's restrictions on export subsidies can be given a world-wide efficiency rationale.  In this paper, we offer one such treatment in the context of a natural monopoly market.  We emphasize that subsidy competition between governments can serve to coordinate the entry decisions of firms, finding that consumers in the importing countries may suffer if the coordination afforded exporters by government subsidy programs does more to prevent entry than to promote it.  In such circumstances, we show that the existence of export subsidy programs can lead to inefficiencies, and importing countries and the world as a whole can be better off when such programs are banned.
ER  -