The authors thank an anonymous referee for helpful comments. Any remaining errors are their own.
Welfare Effects of Reducing Home Bias in Government Procurements: A Dynamic Contest Model
Version of Record online: 16 JAN 2012
© 2012 Blackwell Publishing Ltd
Review of Development Economics
Volume 16, Issue 1, pages 137–147, February 2012
How to Cite
Fujiwara, K. and Van Long, N. (2012), Welfare Effects of Reducing Home Bias in Government Procurements: A Dynamic Contest Model. Review of Development Economics, 16: 137–147. doi: 10.1111/j.1467-9361.2011.00650.x
- Issue online: 16 JAN 2012
- Version of Record online: 16 JAN 2012
This paper models an international contest for government procurement as a dynamic game between a domestic firm and a foreign firm. We show that trade liberalization, in the form of a reduction in bias against the foreign firm, improves both domestic and global welfare if (i) either the foreign firm's profit is sufficiently large or (ii) the initial degree of home bias is sufficiently small. If the initial home bias is large, a small reduction in the bias may reduce welfare.