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Endogenous Sequencing in Strategic Trade Policy Games Under Uncertainty

  • Kit Wong


  • Kong Chow
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    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

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    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 8 (1997)
    Issue (Month): 4 (October)
    Pages: 353-369

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    Handle: RePEc:kap:openec:v:8:y:1997:i:4:p:353-369
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    1. 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..
    2. Dixit, Avinash, 1988. "Anti-dumping and countervailing duties under oligopoly," European Economic Review, Elsevier, vol. 32(1), pages 55-68, January.
    3. David Collie, 1994. "Endogenous timing in trade policy games: Should governments use countervailing duties?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 191-209, March.
    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. Jeffrey J. Schott, 1994. "Uruguay Round: An Assessment," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 64.
    6. Collie, D., 1990. "Export Subsidies And Countervailing Tariffs," The Warwick Economics Research Paper Series (TWERPS) 353, University of Warwick, Department of Economics.
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