Risky Business: Intra-Firm Trade with Foreign Commercial Risk and Asymmetric Insurance

A partial equilibrium model is used to examine the international production allocation of a two-plant risk averse multinational firm which is confronted with uncertainty with respect to foreign sales. The firm has price-discriminating monopoly power in both markets and uses specific factors in both plants, producing an identical good. We focus on the question how unequal insurance facilities in the firm’s home and host market influence the firm’s international production decision and its level of intra-firm trade.multinationals; uncertainty; export insurance; intra-firm trade

Tax uniformity: A commitment device for restraining opportunistic behaviour.

We investigate whether and to what extent uniform and differentiated tax systems diverge in their propensity to create distortionary opportunistic behavoiur. The set-up in which we carry out our analysis features polluting firms that are confronted with existence a Pigovian emission tax. Firms can invest in pollution abatement. We first show that the existence of emmission taxes, although optimally chosen, create strategic incentives for firms to distort their abatement investment. Second, we find that a system of differentiated emission taxes has a greater propensity to foster strategic distortions in abatement investment than a uniform emission tax regime.Uniform tax, Differentiated taxes, Emission tax, Short-run policy commitment, Pollution-abating investment, Strategic investment.

Short-run policy commitment when investment timing is endogenous: "More harm than good?"

We introduce endogenous leadership in a game between government and firms, in which the government has short-run commitment power only and firms choose when to invest. We show that firms that delay investment in the absence of government intervention have an incentive to invest early and strategically under policy activism. Then, even though a policy scheme succeeds in correcting an existing distortion targeted by the government, it can create a new and potentially more harmful one. We investigate when the government may do better by adhering to laissez-faire than by engaging in active policy intervention.Short-run government commitment, Microeconomic policy,Endogenous policy leadership, Investment timing,Uncertainty, Laissez faire

A case of sectoral export promotion: Export insurance subsidies in Belgium.

Belgium; export promotion; Insurance; Subsidies;

Oligopsonistic Cats and Dogs

We study the strategic investment behaviour of oligopsonistic rivals in the labour market. Under wage competition, firms play "puppy dog" with productivityaugmenting investment and "fat cat" with supply-enhancing investment. Under employment competition, investing strategically always involves playing "top dog".Oligopsony,Strategic behaviour,Productivity-augmenting investment

Strategic Investment and the Gains from Trade

This paper examines how trade liberalisation affects innovation, profits and welfare when firms are engaging in strategic R&D investment. We show that there are multiple equilibria including an autarky equilibrium for a range of high but non-prohibitive trade costs. At lower trade costs, only the trading equilibrium survives. Welfare is U-shaped in the trade costs, so a small fall in trade costs can be welfare reducing. However we find a threshold level of the effectiveness of investment above which trade is always welfare superior to autarkyReciprocal Markets, Strategic R&D Investment, Trade Costs, Trade Liberalisation, Effectiveness of R&D.

Export Promotion Via Official Export Insurance

Proponents of free trade argue that export promotion distorts competition and undermines the multilateral trade system. In most countries export insurance is provided by the government and, consequently, is driven more by a broad range of policy objectives than purely insurance principles. This paper, however, shows that export promotion does not necessarily imply trade distortions and that most export destinations do not benefit from insurance premium subsidies. A significant policy implication of these findings is that the WTO and the EU are correct not to banish completely official export insurance

Rivalry in uncertain export markets: commitment versus flexibility

This paper examines optimal trade policy in a two-period oligopoly model, with a home and a foreign firm choosing capital and output. Demand uncertainty, resolved in period two, gives rise to a trade-off between strategic commitment and flexibility in the firms’ investment decisions. Firms’ investment timing is endogenous and can be manipulated by the home government, which sets a subsidy before firms decide when to invest. We show that when the government wishes to manipulate investment timing, it will choose its policy to deter investment commitment by the home or the foreign firm

Intervention in risky export markets: insurance, strategic action or aid?

Because the use of trade policy is limited by international institutional arrangements, governments pursuing a policy of export promotion may want to use more indirect instruments to achieve their objectives. In that context, this paper focuses on the public provision of export insurance. While the prime objective is insurance against the risk of default faced by firms exporting to risky markets, these insurance programmes are often embedded in more global policy objectives of the exporting country’s government. This paper investigates how premium rating of official export insurance is affected by strategic export promotion and the pursuit of other political objectives