Contingent trade policy and economic efficiency
This paper develops an efficiency theory of contingent trade policies. We model the competition for a domestic market between one domestic and one foreign firm as a pricing game under incomplete information about production costs. The cost distributions are asymmetric because the foreign firm has to pay a trade cost. We show that the foreign firm prices more aggressively to overcome its cost disadvantage. The resulting possibility of an inefficient allocation justifies the use of contingent trade policy on efficiency grounds. Contingent trade policy that seeks to maximize global welfare can avoid the potential inefficiency. National governments, on the other hand, make excessive use of contingent trade policy due to rent shifting motives. The expected inefficiency of national policy is larger (smaller) for low (high) trade costs compared to the laissez-faire case. In general, there is no clear ranking between the laissez-faire outcome and a contingent national trade policy.
|Date of creation:||Apr 2011|
|Contact details of provider:|| Web page: http://feb.kuleuven.be/Economics/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Staiger, Robert W. & Wolak, Frank A., 1992.
"The effect of domestic antidumping law in the presence of foreign monopoly,"
Journal of International Economics,
Elsevier, vol. 32(3-4), pages 265-287, May.
- Robert W. Staiger & Frank A. Wolak, 1990. "The Effect of Domestic Antidumping Law in the Presence of Foreign Monopoly," NBER Working Papers 3254, National Bureau of Economic Research, Inc.
- 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.
- Dobrin R. Kolev & Thomas J. Prusa, 1999. "Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy Under Incomplete Information," NBER Working Papers 6986, National Bureau of Economic Research, Inc.
- Thomas J. Prusa & Dobrin Kolev, 1999. "Dumping and Double Crossing: The (In)Effectiveness Of Cost-Based Trade Policy Under Incomplete Information," Departmental Working Papers 199901, Rutgers University, Department of Economics.
- Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
- Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2010. "Trade Agreements as Endogenously Incomplete Contracts," American Economic Review, American Economic Association, vol. 100(1), pages 394-419, March.
- Henrik Horn & Giovanni Maggi & Robert W. Staiger, 2006. "Trade Agreements as Endogenously Incomplete Contracts," NBER Working Papers 12745, National Bureau of Economic Research, Inc.
- Horn, Henrik & Maggi, Giovanni & Staiger, Robert, 2007. "Trade Agreements as Endogenously Incomplete Contracts," CEPR Discussion Papers 6037, C.E.P.R. Discussion Papers.
- Horn, Henrik & Maggi, Giovanni & Staiger, Rikard W., 2007. "Trade Agreements as Endogenously Incomplete Contracts," Working Paper Series 689, Research Institute of Industrial Economics.
- Chisik, Richard, 2003. "Gradualism in free trade agreements: a theoretical justification," Journal of International Economics, Elsevier, vol. 59(2), pages 367-397, March.
- Richard Chisik, 2010. "Gradualism in Free Trade Agreements: A Theoretical Justification," Working Papers 018, Ryerson University, Department of Economics.
- Miyagiwa, Kaz & Ohno, Yuka, 2007. "Dumping as a signal of innovation," Journal of International Economics, Elsevier, vol. 71(1), pages 221-240, March.
- 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.
- Xenia Matschke & Anja Schottner, 2008. "Antidumping as Strategic Trade Policy Under Asymmetric Information," Working papers 2008-19, University of Connecticut, Department of Economics, revised Jan 2010.
- Xenia Matschke & Anja Schöttner, 2009. "Antidumping as Strategic Trade Policy Under Asymmetric Information," CESifo Working Paper Series 2536, CESifo Group Munich.
- Krishna, Vijay, 2002. "Auction Theory," Elsevier Monographs, Elsevier, edition 1, number 9780124262973.
- Ronald D. Fischer & Thomas J. Prusa, 2003. "WTO Exceptions as Insurance," Review of International Economics, Wiley Blackwell, vol. 11(5), pages 745-757, November.
- Anderson, James E, 1992. "Domino Dumping, I: Competitive Exporters," American Economic Review, American Economic Association, vol. 82(1), pages 65-83, March. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ete:ceswps:ces11.05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (library EBIB)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.