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dc.contributor.authorPflüger, Michaelen_US
dc.contributor.authorSüdekum, Jensen_US
dc.description.abstractEntrepreneurs who decide to start a business are faced with different levels of effective entry costs in different countries. These costs are heavily influenced by economic policy through entry regulation and subsidies. In this paper we present a two-country general equilibrium model with monopolistic competition and heterogeneous firms where entrants pay a sunk cost and randomly draw their productivity level. Governments collect lump-sum taxes and subsidize these sunk entry costs for the domestic entrepreneurs. One motive for this policy, valid already in autarky, is to tighten market selection. This selection effect leads to better firms that produce and sell more output at lower prices. In the open economy there is another, strategic motive for entry subsidies as the tightening of market selection leads to a competitive advantage for domestic producers in international trade. Our analysis shows that entry subsidies in the Nash-equilibrium are first increasing, then decreasing in the level of trade freeness. This implies a U-shaped relationship between trade freeness and effective entry costs. Comparing the non-cooperative and the cooperative policies, we furthermore show that there is first too much and then too little entry subsidization in the course of trade integration.en_US
dc.publisherVerein für Socialpolitik Frankfurt a. M.en_US
dc.relation.ispartofseriesBeiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Policy Issues of Firm Heterogeneity and Trade B5-V3en_US
dc.subject.keywordFirm entryen_US
dc.subject.keywordheterogeneous firmsen_US
dc.subject.keywordinternational tradeen_US
dc.subject.keywordmonopolistic competitionen_US
dc.subject.keywordentry regulationen_US
dc.subject.keywordstrategic trade policyen_US
dc.titleSubsidizing firm entry in open economiesen_US
dc.typeConference Paperen_US
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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