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Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy under Incomplete Information

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  • Dobrin R. Kolev

    (Union Square Associates, Inc., USA)

  • Thomas J. Prusa

    (Rutgers University and NBER, USA)

Abstract

We argue that the rise of antidumping protection and the proliferation of voluntary export restraints (VERs) are fundamentally interrelated. We show that both can be explained by a cost-based definition of dumping when the domestic government has incomplete information about the foreign firm's costs. Given that its costs are only imperfectly observed and knowing the government's incentives to protect, efficient foreign firms will voluntarily restrain their exports prior to the antidumping investigation. In turn, the VER distorts the government's perception of the foreign firm's efficiency and leads to undesirably high duties regardless of the foreign firm's efficiency. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 43 (2002)
Issue (Month): 3 (August)
Pages: 895-918

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Handle: RePEc:ier:iecrev:v:43:y:2002:i:3:p:895-918

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  1. Richard Harris, 1984. "Why Voluntary Export Restraints are 'Voluntary'," Working Papers 559, Queen's University, Department of Economics.
  2. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
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  15. Rosendorff, B.P., 1995. "Voluntary Export Restraints, Anti-Dumping Procedure and Domestic Politics," Papers 9512, Southern California - Department of Economics.
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Cited by:
  1. Xenia Matschke & Anja Schöttner, 2009. "Antidumping as Strategic Trade Policy Under Asymmetric Information," CESifo Working Paper Series 2536, CESifo Group Munich.
  2. Bruce Blonigen & Thomas Prusa, 2003. "The Cost of Antidumping: the Devil is in the Details," Journal of Policy Reform, Taylor and Francis Journals, vol. 6(4), pages 233-245.
  3. McCalman, Phillip & Stähler, Frank & Willmann, Gerald, 2011. "Contingent trade policy and economic efficiency," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/305753, Katholieke Universiteit Leuven.
  4. Cláudio Roberto Fóffano Vasconcelos & Silvinha Pinto Vasconcelos, 2005. "Medidas Antidumping E Resultados Colusivos: O Caso Do Pebdl Na Economia Brasileira," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 071, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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