Hu_and_Wan_Paper_Revised

Hu_and_Wan_Paper_Revised - Optimal entry restriction for...

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1 Optimal entry restriction for new industry Yunfang Hu, Tohoku University, Japan Henry Wan, Jr., Cornell University, USA Conference honoring Professor Tapan Mitra 19-20 July, 2008
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2 Outline 1. Introduction 2. History of thoughts - Marshall reconsidered 3. I ndustrial policy in entry restriction 4. C ase history : synthetic fiber industry of Japan 5. Modified Cournot model: a simple example 6. D ynamic programming - the Tohoku algorithm 7. Conclusion
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3 1. Introduction In economics, theoretic analysis is required to interpret history, empirical concern is crucial to apply knowledge. In combination, these two form the key to many development issues. Rarely one scholar excels in both areas, like Tapan, to whom we dedicate this study.
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4 five views of conventional wisdom 1) LDCs often find it hard to start a new sector: • existing firms should benefit the others, • but no one volunteers as a pioneer. This is a Marshallian industry of decreasing average cost; entry deserves subsidy. 2) Successful take-offs occur when entry restriction gets relaxed over time This is policy reform, correcting intervention with liberalism
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5 3) Entry restriction becomes relaxed gradually This is compromise with entrenched interest 4) The pace of entry relaxation varies, country to country This reflects basic differences among the countries 5) The eventual status may be free entry This is the hallmark for optimality .
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6 3) Entry restriction becomes relaxed gradually This is compromise with entrenched interest 4) The pace of entry relaxation varies, country to country This reflects basic differences among the countries 5) The eventual status may be free entry This is the hallmark for optimality . In general, all these five are logically fallible ;
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7 3) Entry restriction becomes relaxed gradually This is compromise with entrenched interest 4) The pace of entry relaxation varies, country to country This reflects basic differences among the countries 5) The eventual status may be free entry This is the hallmark for optimality . In general, all these five are logically fallible ; for some case in Japan, each is certifiably untrue
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8 2. History of thought Interactions among firms In Marshall’s decreasing average cost industries - simultaneous - symmetric - researchable by general equilibrium In some LDCs today - delayed - asymmetric - researchable only by game theory
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9 In the industries in question Expected outcome - 1st mover benefits 2nd mover with costly information
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10 In the industries in question Expected outcome - 1st mover benefits 2nd mover with costly information - 2nd mover ruins 1st mover by competing with free information
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11 In the industries in question Expected outcome - 1st mover benefits 2nd mover with costly information - 2nd mover ruins 1st mover by competing with free information Natural result No 1st mover
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12 In the industries in question Expected outcome - 1st mover benefits 2nd mover with costly information
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This note was uploaded on 06/25/2009 for the course ECON 4450 taught by Professor Wan during the Spring '09 term at Cornell.

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Hu_and_Wan_Paper_Revised - Optimal entry restriction for...

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