Optimal Infant Industry Protection

Speaker: Prof. Yuzhe Zhang (Texas A&M University)

Topic:	Optimal Infant Industry Protection
Time&Date:	15:00-16:15 pm, 2019/6/3 (Monday)
Venue:	Room 619, Teaching A
Speaker:	Prof. Yuzhe Zhang (Texas A&M University)
Abstract:	We analyze how industrial policy should be implemented in a situation in which the government lacks information about firms they are trying to help. We solve a dynamic model in which industrial policy consists of three elements. First, each period the government imposes a quota on foreign imports and provides a subsidy to the domestic firm that insures that the domestic firm produces positive output. The second element of policy is that once the domestic firm announces that the desired cost reduction has been achieved the firm receives a one-time lump sum payment from the government. Finally, there is an endogenous cutoff date at which time the policy ends. The optimal policy has the quota is increasing over time and the subsidy is decreasing over time. The lump sum payment decreases over time and the policy ends essentially when the lump sum payment is zero. Under some conditions, the policy ends in finite time.