Strategic trade policy in the presence of consumer learning

This paper explores the potential role for strategic trade policy when dema nd is impacted by consumer learning. In a linear Cournot model, the optimal subsidy is shown to be increasing in both the firm-specific learning and l earning spillovers among home firms when firms can precommit; however, when precommitment by firms and/or the government is not possible, strategic be haviour by firms may more than offset the infant industries' incentive for an export subsidy. A calibration exercise illustrates the impact of consume r learning on the optimal subsidies and also demonstrates the sensitivity o f the policy prescription.