Strategic Trade Policy in the Presence of Consumer Learning.

This paper explores the potential role for strategic trade policy when demand is impacted by consumer learning. In a linear Cournot model, the optimal subsidy is shown to be increasing in both the firm-specific learning and learning spillovers among home firms when firms can precommit; however, when precommitment by firms and/or the government is not possible, strategic behaviour by firms may more than offset the infant industries' incentive for an export subsidy. A calibration exercise illustrates the impact of consumer learning on the optimal subsidies and also demonstrates the sensitivity of the policy prescription. Copyright 2000 by The London School of Economics and Political Science