The interdependence of firm and government behaviour: Boeing and Eximbank

Abstract

This paper presents a method for linking game-theoretic models, common to the literature of strategic trade policy, to stochastic testing procedures. Reduced-form price and subsidy equations are derived from a two-stage Bertrand duopoly model, and then estimated using data on Eximbank credits authorized for exports of Boeing 737-200 aircraft from 1977 to 1981. Until April 1980, Boeing appears to have been able to induce the Eximbank to set a higher subsidy by stating a higher price in the application for an export credit. A structural shift in the equations is consistent with a policy change in April 1980 which limited Eximbank discretion in setting subsidy rates.