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Uncertainty and the Choice of Trade Policy in Oligopolistic Industries

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Listed:
  • Russell Cooper
  • Raymond Riezman

Abstract

This paper investigates the design of trade policies in an uncertain world. Governments in each of two countries select between direct quantity controls and subsidies in an attempt to shift profits in favour of domestic, imperfectly competitive firms. The equilibrium of this bilateral policy game depends critically on the variability of the environment. In a world of certainty, both governments would choose to regulate the behaviour of their firms through direct quantity controls. With a sufficient amount of uncertainty, both governments regulate their firms through subsidies. This result reflects an important tradeoff between the strategic advantages of direct quantity controls and flexibility gained by the use of subsidies

Suggested Citation

  • Russell Cooper & Raymond Riezman, 1989. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(1), pages 129-140.
  • Handle: RePEc:oup:restud:v:56:y:1989:i:1:p:129-140.
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    File URL: http://hdl.handle.net/10.2307/2297754
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    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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