Brander and Spencer: Export Subsidies and International Market Share Rivalry

Brander, JA, and BJ Spencer. 1984. Export subsidies and international market share rivalry.

This paper explores subsidizing exports and presents a model that explores the effects of such substitution. Export subsidies is very attractive to countries for a variety of reasons. One problem that may arise is a balance of payments shift. However, the authors note that the increased revenues from the artificially cheaper good will offset this. The only way around these problems is through negotiation in order to establish agreements that abolish these export subsidies. However, even if there are agreements, there is incentive to cheat.

"What the paper shows is that noncooperative behaviour provides incentives for such policies, but these policies are jointly suboptimal from the point of view of producing nations taken together" (19).