Technological linkages, market structure, and production policies

Douglas Holtz-Eakin, Mary E. Lovely

Research output: Contribution to journalArticlepeer-review

8 Scopus citations


Proponents of industrial policy argue that key industries merit subsidies because they generate beneficial externalities. We show that policy must reflect both technological linkages and market power in the target industries, the interaction of which may produce an optimal policy including both subsidies and taxes on target industries. The optimal policy combination may not be politically or administratively feasible. If so, we show that it may not be desirable to subsidize output in the externality-generating activity on either a fixed or per-unit basis. Thus, technological linkages alone do not lead to the presumption that the externality-generating activity should be subsidized.

Original languageEnglish (US)
Pages (from-to)73-86
Number of pages14
JournalJournal of Public Economics
Issue number1
StatePublished - Jul 1996


  • Industrial policy
  • Production externalities
  • Subsidies

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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