Sophisticated arguments for Activist Trade policy Technology and Externalities e Externalities Firms in an industry generate knowledge that other firms can also use without paying for it In high-tech industries firms face appropriability problems Example: In electronics. it is common for firms to reverse engineer" their rivals designs Copyright C 2003 Pearson Education, Inc Slide 11-5Copyright © 2003 Pearson Education, Inc. Slide 11-5 ▪ Technology and Externalities • Externalities – Firms in an industry generate knowledge that other firms can also use without paying for it. • In high-tech industries firms face appropriability problems. – Example: In electronics, it is common for firms to “reverse engineer” their rivals’ designs. Sophisticated Arguments for Activist Trade Policy