Adverse Selection in Credit Markets and Infant Industry Protection

35 Pages Posted: 15 Mar 2004 Last revised: 1 May 2021

See all articles by Harry Flam

Harry Flam

Stockholm University - Institute for International Economic Studies (IIES); CESifo (Center for Economic Studies and Ifo Institute)

Robert W. Staiger

Stanford University; University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 1989

Abstract

This paper considers the role for infant industry protection when credit markets suffer from adverse risk selection. We show that asymmetric information about firm-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.

Suggested Citation

Flam, Harry and Staiger, Robert W., Adverse Selection in Credit Markets and Infant Industry Protection (February 1989). NBER Working Paper No. w2864, Available at SSRN: https://ssrn.com/abstract=457556

Harry Flam (Contact Author)

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Robert W. Staiger

Stanford University ( email )

Stanford, CA 94305
United States

University of Wisconsin - Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States
608-262-2265 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
21
Abstract Views
648
PlumX Metrics