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Tariffs with private information and reputation

  • Jensen, Richard
  • Thursby, Marie

When governments choose trade policy, rarely do they have complete information, At the time decisions are made, policy makers have only estimates of market responses, as well as the responses of foreign governments. In many realistic situations, even the policy objectives of other governments may not be known. For example, the balance of constitutional powers in the United States is often cited as a source of confusion as to objectives of U.S. trade policy. In this paper we examine the Bayesian Nash equilibria of several noncooperative tariff games with incomplete information, In the models examined, the home country has private information about whether its government is a low or high tariff type. If the foreign government is uncertain about this type in a one-shot game, its Nash equilibrium tariff will be lower (higher) than if it knew the home government were a low (high) tariff type. In two multistage games, misleading behavior by the home government is shown to be an equilibrium strategy for sufficiently high discount factors. Whether the uncertainty is persistent or can be resolved is shown to be important for welfare results in the multistage setting. In the models examined, tariff rules do not necessarily dominate discretionary policy.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 29 (1990)
Issue (Month): 1-2 (August)
Pages: 43-67

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Handle: RePEc:eee:inecon:v:29:y:1990:i:1-2:p:43-67
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Riezman, Raymond, 1991. "Dynamic tariffs with asymmetric information," Journal of International Economics, Elsevier, vol. 30(3-4), pages 267-283, May.
  2. Stockman, Alan C. & Dellas, Harris, 1986. "Asset markets, tariffs, and political risk," Journal of International Economics, Elsevier, vol. 21(3-4), pages 199-213, November.
  3. Robert C. Feenstra & Tracy R. Lewis, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1287-1307.
  4. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  5. Jonathan Eaton & Gene M. Grossman, 1981. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," NBER Working Papers 0797, National Bureau of Economic Research, Inc.
  6. Feenstra, Robert C, 1987. " Incentive Compatible Trade Policies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(3), pages 373-87.
  7. Robert W. Staiger & Guido Tabellini, 1988. "Rules and Discretion in Trade Policy," NBER Working Papers 2658, National Bureau of Economic Research, Inc.
  8. Rosenthal, R W, 1979. "Sequences of Games with Varying Opponents," Econometrica, Econometric Society, vol. 47(6), pages 1353-66, November.
  9. Kyle Bagwell & Robert W. Staiger, 1989. "A Theory of Managed Trade," Discussion Papers 801, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  11. Leslie Young & James E. Anderson, 1980. "The Optimal Policies for Restricting Trade under Uncertainty," Review of Economic Studies, Oxford University Press, vol. 47(5), pages 927-932.
  12. Thursby, Marie & Jensen, Richard, 1983. "A conjectural variation approach to strategic tariff equilibria," Journal of International Economics, Elsevier, vol. 14(1-2), pages 145-161, February.
  13. Anderson, James E. & Young, Leslie, 1982. "The optimality of tariff quotas under uncertainty," Journal of International Economics, Elsevier, vol. 13(3-4), pages 337-351, November.
  14. repec:hoo:wpaper:e-88-39 is not listed on IDEAS
  15. Cassing, J H & Hillman, A L & Long, N V, 1986. "Risk Aversion, Terms of Trade Uncertainty and Social-Consensus Trade Policy," Oxford Economic Papers, Oxford University Press, vol. 38(2), pages 234-42, July.
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