Trade Policy Under Asymmetric Information
We consider optimal trade policy for a large country with private information. We show that the optimal tariff leads to a signaling equilibrium with higher tariffs and lower welfare than under complete information, whereas the optimal import quota replicates the complete information equilibrium and thus is superior to the tariff. We also show that, with the tariff, the country may be better off being uninformed. Finally, we show that if the importing nation cannot commit to its tariff, the use of futures contracts together with the dynamically consistent tariff leads to the same equilibrium as under complete information with commitment.
|Date of creation:||19 Sep 2002|
|Contact details of provider:|| Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070|
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Web page: http://www.econ.iastate.edu
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- Kyle Bagwell & Robert W. Staiger, 2001.
"Domestic Policies, National Sovereignty, and International Economic Institutions,"
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- Kyle Bagwell & Robert W. Staiger, 1999. "Domestic Policies, National Sovereignty and International Economic Institutions," NBER Working Papers 7293, National Bureau of Economic Research, Inc.
- Collie, David & Hviid, Morten, 1994. "Tariffs for a foreign monopolist under incomplete information," Journal of International Economics, Elsevier, vol. 37(3-4), pages 249-264, November.
- Banks, Jeffrey S & Sobel, Joel, 1987.
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Econometric Society, vol. 55(3), pages 647-661, May.
- Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-1365, November.
- Lapan, Harvey E, 1988.
"The Optimal Tariff, Production Lags, and Time Consistency,"
American Economic Review,
American Economic Association, vol. 78(3), pages 395-401, June.
- Lapan, Harvey E., 1988. "The Optimal Tariff, Production Lags and Time Consistency," Staff General Research Papers Archive 10816, Iowa State University, Department of Economics.
- David Besanko & Daniel F. Spulber, 1992. "Sequential-Equilibrium Investment by Regulated Firms," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 153-170, Summer.
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