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Choice of Trade Policy with Incomplete Information

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  • Ning, Haokai

Abstract

This paper studies the design of trade policies in an uncertain third market with incomplete information. Governments in each of the two countries select either direct quantity controls or subsidies in an attempt to shift profits in favour of their own firms in an oligopolistic setting. It is shown that the country with firms having information disadvantage tends to choose the direct quantity control, while the country with well-informed firms would use export subsidy (export quota) when the degree of uncertainty is sufficiently high (low).

Suggested Citation

  • Ning, Haokai, 2020. "Choice of Trade Policy with Incomplete Information," MPRA Paper 101529, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101529
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    File URL: https://mpra.ub.uni-muenchen.de/113535/9/MPRA_paper_113535.pdf
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    References listed on IDEAS

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    1. Grant, Simon & Quiggin, John, 1997. "Strategic Trade Policy under Uncertainty: Sufficient Conditions for the Optimality of Ad Valorem, Specific and Quadratic Trade Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 187-203, February.
    2. Shivakumar, Ram, 1993. "Strategic trade policy : Choosing between export subsidies and export quotas under uncertainty," Journal of International Economics, Elsevier, vol. 35(1-2), pages 169-183, August.
    3. Ning, Haokai, 2020. "Strategic Trade Policy in Reciprocal Dumping Model with Incomplete Information," MPRA Paper 101530, University Library of Munich, Germany.
    4. Maggi, Giovanni, 1999. "Strategic 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. 40(3), pages 571-594, August.
    5. Ning, Haokai, 2020. "On the Equivalence of Tariffs and Quotas with Incomplete Information," MPRA Paper 101512, University Library of Munich, Germany.
    6. Mahmudul Anam & Shin‐Hwan Chiang, 2000. "Export market correlation and strategic trade policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 33(1), pages 41-52, February.
    7. repec:bla:reviec:v:8:y:2000:i:2:p:311-18 is not listed on IDEAS
    8. Russell Cooper & Raymond Riezman, 2013. "Uncertainty and the Choice of Trade Policy in Oligopolistic Industries," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 16, pages 287-298, World Scientific Publishing Co. Pte. Ltd..
    9. Mahmudul Anam & Shin-Hwan Chiang, 2000. "Export market correlation and strategic trade policy," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 41-52, February.
    10. Creane, Anthony & Miyagiwa, Kaz, 2008. "Information and disclosure in strategic trade policy," Journal of International Economics, Elsevier, vol. 75(1), pages 229-244, May.
    11. Mustafa Caglayan, 2000. "Uncertainty Resolution and Strategic Trade Policy in Oligopolistic Industries," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 311-318, May.
    12. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
    13. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
    14. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-1050, July.
    15. 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.
    16. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
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    Cited by:

    1. Ning, Haokai, 2020. "Strategic Trade Policy in Reciprocal Dumping Model with Incomplete Information," MPRA Paper 101530, University Library of Munich, Germany.
    2. Ning, Haokai, 2020. "On the Equivalence of Tariffs and Quotas with Incomplete Information," MPRA Paper 101512, University Library of Munich, Germany.

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    More about this item

    Keywords

    Uncertainty; incomplete information; Bayesian Nash equilibrium; strategic trade policy; Cournot competition;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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