The Welfare Analysis of Trade Policies: The Optimal Government Intervention Timing under Incomplete Information
This paper examines the welfare effects of the government trade policy when the government intervenes as a second mover under incomplete information. When the government decides her trade policy after an exporting firm decides its strategy, both the high quality firm (H) and the low quality firm (L) use their first mover advantage to raise the price in addition to H's upward price distortion for signaling purposes, and the government offers export subsidies to compensate for the price increase. It is shown that in the presence of a distortionary cost of raising government revenue, social welfare is highest when the government is a first mover, followed by non-intervention; social welfare is lowest when the government is a second mover. [F13, F12, L13]
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Volume (Year): 13 (1999)
Issue (Month): 4 ()
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References listed on IDEAS
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- Kyle Bagwell & Michael Riordan, 1988.
"High and Declining Prices Signal Product Quality,"
808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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"Optimal Export Policy for a New-Product Monopoly,"
898, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Brainard, S Lael, 1994. "Last One Out Wins: Trade Policy in an International Exit Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 151-72, February.
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