Industrial Targeting, Experimentation and Long-Run Specialization

43 Pages Posted: 1 Dec 1998

See all articles by Mikhail M. Klimenko

Mikhail M. Klimenko

Georgia Institute of Technology - School of Economics

Date Written: June 1998

Abstract

The government?s policy of selecting industries for targeted promotion is formalized as a multi-armed bandit process. The welfare maximizing targeting strategy is determined by a profitability index attached to each industry. A government updates its beliefs about its country?s comparative advantage in a Bayesian way after observing realizations of random productivity of new firms in a targeted industry. The sequence of posterior beliefs is a martingale with respect to a natural filtration generated by a sequence of random productivity parameters. By applying martingale convergence results, the paper analyzes the pattern of specialization to which a country will converge in the long-run given its government?s optimal targeting policy.

JEL Classification: D83, 014, F13, C44

Suggested Citation

Klimenko, Mikhail M., Industrial Targeting, Experimentation and Long-Run Specialization (June 1998). Available at SSRN: https://ssrn.com/abstract=141240 or http://dx.doi.org/10.2139/ssrn.141240

Mikhail M. Klimenko (Contact Author)

Georgia Institute of Technology - School of Economics ( email )

781 Marietta Street, NW
Atlanta, GA 30332
United States

HOME PAGE: http://www.econ.gatech.edu/docs/klimenko_vita0904.pdf

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