imports from abroad, we examine private and social incentives for quality innovation. For differential tariff regime, we show … market for any given tariff on high-quality imports. But for some very high costs of innovation, the local firm may not … undertake a socially desirable innovation. The pro-competitive effect, on the other hand, ensures that quality …

dominated by the use of rules of thumb. These heuristic solutions are not rational according to traditional economic theory but …