Fear Shocks, Subsidies and Covid-19 In an Integrated Market
Keywords:
fear externality, integrated markets, subsidy, COVID-19, cooperative policies, emotions, cognitive bias, consumer decision, welfare analysis, international trade.
Abstract
In an imperfect competition model of trade a domestic and foreign country establish a cooperative or non-cooperative subsidy schedule. The optimal subsidies are positive but different in size depending of the firm’s efficiency and the magnitude of the consumer market. After setting the subsidy, a fear shock in the domestic country caused by COVID-19 affects the domestic welfare depending on the subsidy schedule and firms’ efficiency. The effect of a fear shock in foreign country depends on his patter of trade. Finally, when fear shock affects negatively the welfare, the best policy response is to reduce the subsidy.
Published
2021-11-15
How to Cite
Espinosa Ramirez, R. S. (2021). Fear Shocks, Subsidies and Covid-19 In an Integrated Market. Economic Analysis Review, 36(2), 53-75. Retrieved from https://www.rae-ear.org/index.php/rae/article/view/778
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