TIME CONSISTENCY, LEARNING BY DOING AND INFANT-INDUSTRY PROTECTION - THE LINEAR CASE

This paper examines the implications for strategic trade policy of dif ferent assumptions about precommitment in a dynamic oligopoly game wit h learning by doing. Assuming that demands are linear, we find that th e optimal first-period subsidy is increasing in the rate of learning w ith precommitment but decreasing in it if the government cannot precom mit to future subsidies. The infant-industry argument is thus reversed in the absence of precommitment.