Essays on the optimal level of content protections
Abstract
This dissertation consists of three essays on the domestic content protection schemes (CPSs) which have been widely used as devices to protect intermediate goods producers. The first essay examines the optimal level of content requirement when the objective is to maximize the joint welfare of several political groups as defined by the weighted sum of consumer surplus, the profit of domestic firms, and domestic employment expressed as the total wage payment. Our contributions here are, among other things, to identify (a) relationships between the level of the optimal domestic content requirement and the ratio of input prices; (b) relationships between the level of the optimal domestic content requirement and the total number of domestic firms competing in the domestic market; (c) relationships between the level of the optimal domestic content requirement and the total number of foreign subsidiaries competing in the domestic market. We also show that the optimal level of domestic content requirement depends on how content protection schemes are defined. The second essay extends the work of the first chapter by dealing with a model that assumes symmetric access to inputs. We focus on the effects of content schemes upon domestic employment in order to provide labor organizations and other pro-workers' constituencies with a clear picture of relationships between the optimal local content protection and (a) the capital-labor ratio in the production function; (b) the ratio of domestic input cost to the imported input cost; and (c) the total number of domestic firms in the market; (d) the total number of foreign subsidiaries in the market. We suggest the relative importance of the various forces involved in determining the optimal content protection. Our analysis sheds light on why the optimal domestic content requirement may vary when content schemes are imposed on different nations or on different industries. Studies on multimarket oligopolies have become more widespread since Bulow, Geanakoplos and Klemperer (1985). The third essay identifies the strategic externalities of CPSs and examines their economic implications. Strategic externalities are said to exist when decisions made on origin rules to serve a government policy in one market affect optimal decisions and outcomes in other markets.
Degree
Ph.D.
Advisors
Barron, Purdue University.
Subject Area
Economics
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