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Market Structure and Trade Policy under Asymmetric Information

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  • Mohammad Amin

Abstract

The paper compares tariffs and import quotas when the home firm has private information about its true cost and the government offers incentive contracts to extract this information. We highlight the role of underlying market structure in determining the ranking of the two policy instruments. Our results show that quotas are at least as efficient as tariffs in implementing the optimal level of protection and strictly more for a wide range of market structures. The exact condition for this is identified. Welfare-based ranking of the two instruments follows from this.

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File URL: http://128.118.178.162/eps/it/papers/0402/0402004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0402004.

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Length: 31 pages
Date of creation: 05 Feb 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0402004

Note: Type of Document - pdf; prepared on Win98; pages: 31
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Web page: http://128.118.178.162

Related research

Keywords: Tariffs versus Quotas; Asymmetric Information; Conjectural Variations;

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References

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  1. Grossman, G.M. & Helpman, E., 1992. "Protection for Sale," Papers 21-92, Tel Aviv.
  2. Martin K. Perry, 1982. "Oligopoly and Consistent Conjectural Variations," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 197-205, Spring.
  3. Brainard, S. Lael & Martimort, David, 1997. "Strategic trade policy with incompletely informed policymakers," Journal of International Economics, Elsevier, vol. 42(1-2), pages 33-65, February.
  4. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  5. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  6. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
  7. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
  8. Matschke, Xenia, 2003. "Tariff and quota equivalence in the presence of asymmetric information," Journal of International Economics, Elsevier, vol. 61(1), pages 209-223, October.
  9. Itoh, Motoshige & Ono, Yoshiyasu, 1982. "Tariffs, Quotas, and Market Structure," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 295-305, May.
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