TIME CONSISTENCY, LEARNING BY DOING AND INFANT-INDUSTRY PROTECTION - THE LINEAR CASE

This paper examines the implications for strategic trade policy of different assumptions about precommitment in a dynamic oligopoly game with learning by doing. Assuming that demands are linear, we find that the optimal first-period subsidy is increasing in the rate of learning with precommitment but decreasing in it if the government cannot precommit to future subsidies. The infant-industry argument is thus reversed in the absence of precommitment.