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Industrial clusters, asymmetric information and policy design

Orvedal, Linda
Working paper
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URI
http://hdl.handle.net/11250/162864
Date
2002-12
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  • Discussion papers (SAM) [586]
Abstract
Recently there has been some attention on the issue of industrial clusters and

industrial policy claiming that there are arguments in favour of subsidising special

industries in order to stimulate industrial agglomeration. An important objection

against such a selective industrial policy is that the government needs full information

about the industries to be able to pick the winners. But often the government does not

know whether the industry is a cluster or not. If the policy towards a cluster is more

favourable than the policy towards other industries, all industries will have incentives

to allege to be clusters. The problem for the government is to identify the true clusters

from the ordinary industries. This paper attempts to shed some light on the problem of

industrial policy and industrial clusters when there is asymmetric information between

the government and the industry. We show that a subsidy contingent of a certain activity level will create a separating equilibrium.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2002:25

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