Adverse Selection in Credit Markets and Infant Industry Protectionism
1989 (English)Report (Other academic)
This paper considers the role for infant industry protection when credit markets suffer from adverse risk selection. We show that asymmetric information about form-specific risk leads to under-funding of the infant industry in a competitive credit market. A small amount of infant industry protection is shown to be welfare improving, and the optimal infant industry tariff is derived. Finally, an alternative government policy of production subsidies is considered under the assumption that the government shares private knowledge with infant industry firms. We argue that a tariff may dominate production subsidies as an entry promoting devise in this context.
Place, publisher, year, edition, pages
Stockholm: IIES , 1989. , 37 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 432
IdentifiersURN: urn:nbn:se:su:diva-41618OAI: oai:DiVA.org:su-41618DiVA: diva2:331592