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Antidumping Duties Under Asymmetric Cost Information

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Author Info

  • Xenia Matschke

    (University of Connecticut)

  • Anja Schottner

    (University of Bonn)

Abstract

In the last two decades, trade liberalization under GATT/WTO has been partly offset by an increase in antidumping protection due to the inclusion of sales below cost in the definition of dumping. The cost-based definition gives regulating authorities an opportunity to choose protection according to their liking. This paper investigates the domestic government's antidumping duty choice in an asymmetric information framework where the foreign firm's cost is observed by the domestic firm, but not by the government. To induce truthful revelation, the government can design a tariff schedule, contingent on firms' cost reports, accompanied by a threat to collect additional information for report verification (i.e., auditing) and, in case misreporting is detected, to set penalty duties. We devise a mechanism where the domestic and foreign firm may be asked to provide cost reports under which the full-information, i.e., efficient, tariffs are implementable. We also discuss the conditions under which this policy is optimal and when it may be better to instead adopt a "facts available" policy, i.e., a policy where no information from the foreign firm is solicited.

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File URL: http://www.econ.uconn.edu/working/2007-39.pdf
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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2007-39.

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Length: 24 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:uct:uconnp:2007-39

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Web page: http://www.econ.uconn.edu/
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Keywords: antidumping duties; asymmetric information; trade protection;

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