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The silver lining of red tape
Author(s)
Date Issued
2010-05
Date Available
2010-12-14T14:28:54Z
Abstract
An increasing number of international agreements require “nondiscrimination”
from their participants, i.e. the government of one country cannot treat
foreign firms differently from domestic firms. This is at odds with a government’s desire
to benefit its own citizens rather than foreign citizens. I show that the use of red tape – a
wasteful application process – can achieve de-facto discrimination. Key to this result is
firm heterogeneity since, although the red tape cost is constant across firms, only those
sufficiently benefiting from an incentive program will find it worth the cost of applying.
If the benefits of targeting subsidies outweigh the burden of red tape on domestic firms,
red tape will be used.
Sponsorship
Not applicable
Type of Material
Working Paper
Publisher
University College Dublin. School of Economics
Series
UCD Centre for Economic Research Working Paper Series
WP 10 18
Classification
H2
F2
Subject – LCSH
Trade regulation
Subsidies
International business enterprises
Barriers to entry (Industrial organization)
Web versions
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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