This paper deals with the question whether industrial policy is better performed by the central government or by regional governments. The advantage of the decentral solution is better information about the regional industry: Only the regional government knows the costs of the firm in its region. On the other hand, the central government internalizes the negative spillovers of strategic industrial policy. In an integrated Cournot duopoly market with domestic and third country consumption it is shown that the decentral solution will be preferred if only a small fraction of the good is exported and if there does exist some degree of uncertainty with respect to the costs of the duopolists.
JEL-classification: D43, H70, L52
Key words: Industrial policy; (De)centralization
Karl Morasch, Wirtschafts- und Sozialwissenschaftliche Fakultät
Universität Augsburg, D-86135 Augsburg
Tel.: (0821) 598-4196, Fax: (0821) 598-4230
e-mail: Karl Morasch