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The Welfare Analysis of Trade Policies: The Optimal Government Intervention Timing under Incomplete Information

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  • Young-Han Kim

Abstract

This paper examines the welfare effects of the government trade policy when the government intervenes as a second mover under incomplete information. When the government decides her trade policy after an exporting firm decides its strategy, both the high quality firm (H) and the low quality firm (L) use their first mover advantage to raise the price in addition to H's upward price distortion for signaling purposes, and the government offers export subsidies to compensate for the price increase. It is shown that in the presence of a distortionary cost of raising government revenue, social welfare is highest when the government is a first mover, followed by non-intervention; social welfare is lowest when the government is a second mover. [F13, F12, L13]

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 13 (1999)
Issue (Month): 4 ()
Pages: 53-70

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Handle: RePEc:taf:intecj:v:13:y:1999:i:4:p:53-70

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  1. Kyle Bagwell & R. Staiger, 1987. "The Role of Export Subsidies When Product Quality is Unknown," Discussion Papers 758, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Kyle Bagwell, 1990. "Optimal Export Policy for a New-Product Monopoly," Discussion Papers 898, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Constantinos Syropoulos, 1994. "Endogenous Timing in Games of Commercial Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 27(4), pages 847-64, November.
  4. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
  5. Neary, J Peter, 1989. "Export Subsidies and Price Competition," CEPR Discussion Papers 327, C.E.P.R. Discussion Papers.
  6. Goldberg, Pinelopi Koujianou, 1995. "Strategic Export Promotion in the Absence of Government Precommitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 407-26, May.
  7. Brainard, S Lael, 1994. "Last One Out Wins: Trade Policy in an International Exit Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 151-72, February.
  8. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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