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Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy Under Incomplete Information

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  • Dobrin R. Kolev
  • Thomas J. Prusa

Abstract

We argue that the rise of antidumping protection and the proliferation of voluntary export restraints are fundamentally inter-related. We show that both can be explained by a cost-based definition of dumping when the domestic government has incomplete information about the foreign firm's costs. Given that its costs are only imperfectly observed and knowing the government's desire to offer greater protection against competitively priced imports, efficient foreign firms will voluntarily restrain their exports prior to the antidumping investigation. In turn, the VER distorts the government's perception of the foreign firm's efficiency and often leads to undesirably high duties regardless of the foreign firm's efficiency. The clumsy way that duties are levied benefits domestic firms, which explains the popularity of cost-based complaints.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6986.

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Date of creation: Feb 1999
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Publication status: published as Kolev, Dobrin R. and Thomas J. Prusa. "Dumping And Double Crossing: The (In)Effectiveness Of Cost-Based Trade Policy," International Economic Review, 2002, v43(3,Aug), 895-918.
Handle: RePEc:nbr:nberwo:6986

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Cited by:
  1. Kaz Miyagiwa, 2009. "Saving Dolphins: Boycotts, Trade Sanctions, And Unobservable Technology," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 883-902, 08.
  2. Durling, James P. & Prusa, Thomas J., 2006. "The trade effects associated with an antidumping epidemic: The hot-rolled steel market, 1996-2001," European Journal of Political Economy, Elsevier, Elsevier, vol. 22(3), pages 675-695, September.
  3. Bruce Blonigen & Thomas Prusa, 2003. "The Cost of Antidumping: the Devil is in the Details," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 6(4), pages 233-245.
  4. Xenia Matschke & Anja Schottner, 2008. "Antidumping as Strategic Trade Policy Under Asymmetric Information," Working papers, University of Connecticut, Department of Economics 2008-19, University of Connecticut, Department of Economics, revised Jan 2010.
  5. Gasmi, Farid & Malin, Eric & Tandé, François, 2004. "Lobbying in Antidumping," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 320, Institut d'Économie Industrielle (IDEI), Toulouse.
  6. Cláudio Roberto Fóffano Vasconcelos & Silvinha Pinto Vasconcelos, 2005. "Medidas Antidumping E Resultados Colusivos: O Caso Do Pebdl Na Economia Brasileira," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of 071, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  7. Phillip McCalman & Frank Stähler & Gerald Willmann, 2013. "Contingent Trade Policy and Economic Efficiency," Kiel Working Papers 1853, Kiel Institute for the World Economy.
  8. Bouët, Antoine & Cassagnard, Patrice, 2013. "Strategic trade policy under asymmetric information with screening," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 286-293.

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