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Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy under Incomplete Information

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  • Dobrin R. Kolev

    (Union Square Associates, Inc., USA)

  • Thomas J. Prusa

    (Rutgers University and NBER, USA)

Abstract

We argue that the rise of antidumping protection and the proliferation of voluntary export restraints (VERs) are fundamentally interrelated. We show that both can be explained by a cost-based definition of dumping when the domestic government has incomplete information about the foreign firm's costs. Given that its costs are only imperfectly observed and knowing the government's incentives to protect, efficient foreign firms will voluntarily restrain their exports prior to the antidumping investigation. In turn, the VER distorts the government's perception of the foreign firm's efficiency and leads to undesirably high duties regardless of the foreign firm's efficiency. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

Suggested Citation

  • Dobrin R. Kolev & Thomas J. Prusa, 2002. "Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 895-918, August.
  • Handle: RePEc:ier:iecrev:v:43:y:2002:i:3:p:895-918
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Xenia Matschke & Anja Schöttner, 2013. "Antidumping as Strategic Trade Policy under Asymmetric Information," Southern Economic Journal, Southern Economic Association, vol. 80(1), pages 81-105, July.
    2. Kaz Miyagiwa, 2009. "Saving Dolphins: Boycotts, Trade Sanctions, And Unobservable Technology," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 883-902, August.
    3. Bruce Blonigen & Thomas Prusa, 2003. "The Cost of Antidumping: the Devil is in the Details," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(4), pages 233-245.
    4. Bouët, Antoine & Cassagnard, Patrice, 2013. "Strategic trade policy under asymmetric information with screening," Economic Modelling, Elsevier, vol. 32(C), pages 286-293.
    5. Phillip McCalman & Frank Stähler & Gerald Willmann, 2011. "Contingent Trade Policy and Economic Efficiency," CESifo Working Paper Series 3424, CESifo Group Munich.
    6. Cláudio Roberto Fóffano Vasconcelos & Silvinha Pinto Vasconcelos, 2005. "Medidas Antidumping E Resultados Colusivos: O Caso Do Pebdl Na Economia Brasileira," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 071, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    7. Durling, James P. & Prusa, Thomas J., 2006. "The trade effects associated with an antidumping epidemic: The hot-rolled steel market, 1996-2001," European Journal of Political Economy, Elsevier, vol. 22(3), pages 675-695, September.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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