Strategic Trade Policy and Mode of Competition: Symmetric versus Asymmetric Information
AbstractIn this paper, we analyze the following policy dilemma: strategic trade policy versus free trade when the domestic government is bound to intervene only after the domestic firm's strategic variable is chosen. This intervention allows the domestic firm to manipulate the domestic government and results in a socially inefficient choice of the strategic variable. However, commitment to free trade leads to forgoing the benefits from profit-shifting. Yet, from the social point of view, free trade may be optimal even under the assumption of symmetric information. Due to costly signaling, this result is reinforced in the case of asymmetric information.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp174.
Date of creation: May 2001
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More information through EDIRC
strategic trade policy; free trade; first-best versus second best policy; government's commitment; signaling;
Other versions of this item:
- Delia Ionascu & Kresimir Zigic, 2001. "Strategic Trade Policy and Mode of Competition: Symmetric versus Asymmetric Information," International Trade 0106001, EconWPA.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
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