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Tariff Discrimination versus MFN under Incomplete Information

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  • Saltuk Ozerturk
  • Kamal Saggi

Abstract

Does the presence of incomplete information affect a country's incentive to discriminate across exporters with different costs? If so, how? From a global perspective, does the presence of incomplete information weaken or strengthen the case for MFN? We examine these questions in a model of imperfect competition with two asymmetric exporters and a single importing country who is imperfectly informed about exporters' costs. Despite the lack of complete information, the importing country prefers discrimination to MFN. However, equilibrium tariff dispersion is lower under incomplete information. As a result, the global welfare gain from MFN, while still positive, is smaller under incomplete information relative to the case of complete information.

Suggested Citation

  • Saltuk Ozerturk & Kamal Saggi, 2005. "Tariff Discrimination versus MFN under Incomplete Information," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(2), pages 197-208.
    • Handle: RePEc:taf:jitecd:v:14:y:2005:i:2:p:197-208
    DOI: 10.1080/09638190500093208
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    References listed on IDEAS

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    1. Gatsios, Konstantine, 1990. "Preferential tariffs and the 'most favoured nation' principle: A note," Journal of International Economics, Elsevier, vol. 28(3-4), pages 365-373, May.
    2. Hong Hwang & Chao-Cheng Mai, 1991. "Optimum Discriminatory Tariffs under Oligopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 24(3), pages 693-702, August.
    3. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    4. McCalman, Phillip, 2002. "Multi-lateral trade negotiations and the Most Favored Nation clause," Journal of International Economics, Elsevier, vol. 57(1), pages 151-176, June.
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    Cited by:

    1. Kamal Saggi, 2018. "Tariffs and the most favored nation clause," World Scientific Book Chapters, in: Kamal Saggi (ed.), Economic Analysis of the Rules and Regulations of the World Trade Organization, chapter 1, pages 3-32, World Scientific Publishing Co. Pte. Ltd..
    2. Kangsik Choi & Seonyoung Lim, 2023. "Sequential tariffs with increasing marginal costs," Manchester School, University of Manchester, vol. 91(4), pages 336-360, July.
    3. Hong-Ren Din & Kuang-Cheng Andy Wang & Wen-Jung Liang, 2016. "MFN vs Tariff Discrimination in the Presence of Cross Ownership," Review of International Economics, Wiley Blackwell, vol. 24(5), pages 1149-1166, November.
    4. Lee, Ki-Dong & Choi, Kangsik, 2023. "Optimal tariffs with endogenous vertical structure: Uniform versus discriminatory tariffs," Mathematical Social Sciences, Elsevier, vol. 124(C), pages 35-50.

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