Jean Marie Viaene (Erasmus University Rotterdam, Tinbergen Institute and CESifo) Laixun Zhao (Research Institute for Economics and Business Administration, Kobe University)
Abstract
This paper examines international trade in tainted food and other low-quality products. We first find that for a large class of environments, free trade is the trading system that conveys the highest incentives to produce non-tainted high-quality goods by foreign exporters. However, free trade is neither a necessary nor a sufficient condition to exclude trade in tainted products. This condition is less easily satisfied if the marginal cost of high-quality production increases, or if errors of testing product quality matter. We also examine cases of image-building investments and sabotage. In particular, sabotage by the domestic firm reduces the foreign firm's incentives to produce high quality, and as a consequence tends to increase import tainting.
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Publisher Info
Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number
245.
Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations I12 - Health, Education, and Welfare - - Health - - - Health Production
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