Buy Local? Governmental Incentives to ‘Inform’ Consumers

15 Pages Posted: 11 May 2016

See all articles by Martin Richardson

Martin Richardson

Australian National University (ANU) - Faculty of Economics & Commerce

Frank Stähler

University of Tuebingen - Department of Economics; University of Adelaide - School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2016

Abstract

This paper considers governmental incentives to provide information to local consumers about the relative merits of local versus foreign goods. We construct a model in which a local firm in a small, open economy competes in its domestic market with imports. Consumers are willing to pay an idiosyncratic premium for the local product, drawn from some support that the importing country government can affect through a costly information campaign. We examine incentives to undertake such a campaign in autarky and in the case of trade. We show, inter alia, that while a national welfare‐maximising government will always wish to shift this distribution upwards, it may not wish to reduce the variance of valuations, and that the optimal response of a foreign government will be to increase any support it offers to its exporters. Furthermore, falling world prices generally reduce the attractiveness of such a campaign both to a welfare‐maximising government and to one that cares only for domestic profits.

Suggested Citation

Richardson, Martin and Stähler, Frank, Buy Local? Governmental Incentives to ‘Inform’ Consumers (May 2016). The World Economy, Vol. 39, Issue 5, pp. 636-650, 2016, Available at SSRN: https://ssrn.com/abstract=2778357 or http://dx.doi.org/10.1111/twec.12384

Martin Richardson (Contact Author)

Australian National University (ANU) - Faculty of Economics & Commerce ( email )

Canberra, Australian Capital Territory 2601
Australia

Frank Stähler

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

HOME PAGE: http://www.frank-staehler.de

University of Adelaide - School of Economics ( email )

Adelaide SA, 5005
Australia

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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