Strategic Trade Policy and Signalling with Unobservable Costs
AbstractA two-period simultaneous signalling model is developed in which first period outputs not only signal a firm's cost to its competitor, but also signal its costs to a home country government. It is shown that the existence of second period home country strategic trade policy increases the incentives that both home and foreign high-cost firms have to misrepresent themselves as low cost. As a result, in the unique separating sequential equilibrium of this signalling game, second period strategic trade policy induces low-cost firms to distort their first period outputs more than otherwise. The major implication of this result is that the existence of second strategic trade policy can reduce welfare.
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Bibliographic InfoPaper provided by University of Sydney, School of Economics in its series Working Papers with number 198.
Date of creation: Apr 1994
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Other versions of this item:
- Wright, Donald J, 1998. "Strategic Trade Policy and Signalling with Unobservable Costs," Review of International Economics, Wiley Blackwell, vol. 6(1), pages 105-19, February.
- Donald Wright, . "Strategic Trade Policy and Signalling with Unobservable Costs," Discussion Papers 95/6, Department of Economics, University of York.
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- Bouët, Antoine & Cassagnard, Patrice, 2013. "Strategic trade policy under asymmetric information with screening," Economic Modelling, Elsevier, vol. 32(C), pages 286-293.
- Sonali Deraniyagala & Ben Fine, 2000. "New Trade Theory Versus Old Trade Policy: A Continuing Enigma," Working Papers 102, Department of Economics, SOAS, University of London, UK.
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- Sun, Ning & Yao, Hongxin, 2011. "Manipulable behavior in international trade," Economic Modelling, Elsevier, vol. 28(1-2), pages 60-66, January.
- Matloob Piracha, 2004. "Export Subsidies and Countervailing Duties Under Asymmetric Information," Studies in Economics 0410, Department of Economics, University of Kent.
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