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Ignorance Is Bliss as Trade Policy

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  • Creane, Anthony

Abstract

Consider domestic consumers that purchase from foreign firms. A presumption would be that consumers prefer being informed when quality is uncertain and exogenous. However, in a multifirm framework based on previous models, consumers can be worse off if they are informed of the quality. Further, in the Salop-circle model, consumers may prefer not learning even though expected high-quality output is greater with learning. Moreover, the possibility that consumers prefer uncertainty increases with the probability that products are of low quality. Essentially, the benefit of screening quality (better matching) can be less than its cost (higher prices from market segmentation). Copyright 1998 by Blackwell Publishing Ltd.

Suggested Citation

  • Creane, Anthony, 1998. "Ignorance Is Bliss as Trade Policy," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 616-624, November.
  • Handle: RePEc:bla:reviec:v:6:y:1998:i:4:p:616-24
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    Cited by:

    1. Anthony Creane, 2008. "A note on welfare-improving ignorance about quality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(3), pages 585-590, March.
    2. 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.
    3. MacLaren, Donald, 2003. "Consumers’ Preferences, Credence Goods And The Wto Sps Agreement," 2003 Conference (47th), February 12-14, 2003, Fremantle, Australia 57915, Australian Agricultural and Resource Economics Society.
    4. Creane, Anthony & Jeitschko, Thomas D. & Sim, Kyoungbo, 2019. "Welfare effects of certification under latent adverse selection," DICE Discussion Papers 312, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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