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Endogenous Sequencing in Strategic Trade Policy Games Under Uncertainty

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  • Kit Wong

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  • Kong Chow

Abstract

This paper examines a strategic trade policy game with endogenous timing. A trade-off between commitment and flexibility is identified. The equilibrium timing of trade policy decisions is shown to highly depend on the degree of demand uncertainty. When demand uncertainty is low, countervailing duties will never be used because the home government always sets its import tariff before the foreign government sets its export subsidy. When demand uncertainty reaches a threshold level, the home government starts to find it optimal to move second with positive probability. As a result, we provide an economic rationale for the prevailing use of countervailing duties in practice. Copyright Kluwer Academic Publishers 1997

Suggested Citation

  • Kit Wong & Kong Chow, 1997. "Endogenous Sequencing in Strategic Trade Policy Games Under Uncertainty," Open Economies Review, Springer, vol. 8(4), pages 353-369, October.
  • Handle: RePEc:kap:openec:v:8:y:1997:i:4:p:353-369
    DOI: 10.1023/A:1008291013212
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    References listed on IDEAS

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    1. Dixit, Avinash, 1988. "Anti-dumping and countervailing duties under oligopoly," European Economic Review, Elsevier, vol. 32(1), pages 55-68, January.
    2. Collie, David, 1991. "Export subsidies and countervailing tariffs," Journal of International Economics, Elsevier, vol. 31(3-4), pages 309-324, November.
    3. Jeffrey J. Schott, 1994. "Uruguay Round: An Assessment," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 64, January.
    4. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    5. David Collie, 1994. "Endogenous timing in trade policy games: Should governments use countervailing duties?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 191-209, March.
    6. Russell Cooper & Raymond Riezman, 2013. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industries," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 16, pages 287-298 World Scientific Publishing Co. Pte. Ltd..
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    Citations

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    Cited by:

    1. Masayuki Hayashibara, 2002. "Industrial Concentration Reverses the Timing in a Trade Policy Game," Open Economies Review, Springer, vol. 13(1), pages 73-86, January.
    2. Tsuyoshi Toshimitsu, 2012. "The endogenous timing of tariff policy," Discussion Paper Series 80, School of Economics, Kwansei Gakuin University, revised Feb 2012.
    3. Udo Broll & Peter Welzel & Kit Wong, 2009. "Export and Strategic Currency Hedging," Open Economies Review, Springer, vol. 20(5), pages 717-732, November.
    4. 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.

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