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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. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  2. 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.
  3. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  4. Brainard, S.L. & Martimort, D., 1992. "Strategic Trade Policy with Incompletely Informed Policymakers," Papers 92.277, Toulouse - GREMAQ.
  5. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  6. Martin K. Perry, 1982. "Oligopoly and Consistent Conjectural Variations," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 197-205, Spring.
  7. 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.
  8. Itoh, Motoshige & Ono, Yoshiyasu, 1982. "Tariffs, Quotas, and Market Structure," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 295-305, May.
  9. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
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