IDEAS home Printed from https://ideas.repec.org/p/rut/rutres/199705.html
   My bibliography  Save this paper

Tariff Policy for a Monopolist Under Incomplete Information

Author

Listed:
  • Thomas J. Prusa

    (Rutgers University)

  • Dobrin Kolev

    (Mitchell Madison Group)

Abstract

We examine the incentives for a government to levy an optimal tariff on a foreign monopolist. With complete information, the home government uses tariffs to extract rents and therefore implements a policy of discriminatory tariffs entailing higher tariffs on more efficient firms. By contrast if the government is incompletely informed about costs, we show that under reasonable conditions the unique self-enforcing outcome involves pooling where firms export the same quantity regardless of efficiency. Due to the distortions created by incomplete information we find that in general, home country welfare is higher under a policy of uniform tariffs than under one of discriminatory tariffs. Our results suggest that trade policies that are motivated by rent extraction are unlikely to be robust to the introduction of incomplete information.

Suggested Citation

  • Thomas J. Prusa & Dobrin Kolev, 1998. "Tariff Policy for a Monopolist Under Incomplete Information," Departmental Working Papers 199705, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:199705
    as

    Download full text from publisher

    File URL: http://www.sas.rutgers.edu/virtual/snde/wp/1997-05.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Peter Svedberg, 1979. "Optimal Tariff Policy on Imports from Multinationals," The Economic Record, The Economic Society of Australia, vol. 55(1), pages 64-67, March.
    2. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    3. Feenstra, Robert C., 1995. "Estimating the effects of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 30, pages 1553-1595, Elsevier.
    4. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-690, September.
    5. Brainard, S. Lael & Martimort, David, 1997. "Strategic trade policy with incompletely informed policymakers," Journal of International Economics, Elsevier, vol. 42(1-2), pages 33-65, February.
    6. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Paper 517, Economics Department, Queen's University.
    7. Grossman, Gene M & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 675-708, August.
    8. Collie, David & Hviid, Morten, 1993. " Export Subsidies as Signals of Competitiveness," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(3), pages 327-339.
    9. Hong Hwang & Chao-Cheng Mai, 1991. "Optimum Discriminatory Tariffs under Oligopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 24(3), pages 693-702, August.
    10. Katrak, Homi, 1977. "Multi-national Monopolies and Commercial Policy," Oxford Economic Papers, Oxford University Press, vol. 29(2), pages 283-291, July.
    11. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
    12. Bagwell, K. & Staiger, R.W., 1996. "Reciprocal Trade Liberalization," Working papers 9602, Wisconsin Madison - Social Systems.
    13. 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.
    14. Banks, Jeffrey S & Sobel, Joel, 1987. "Equilibrium Selection in Signaling Games," Econometrica, Econometric Society, vol. 55(3), pages 647-661, May.
    15. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    16. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
    17. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
    18. Svedberg, Peter, 1979. "Optimal Tariff Policy on Imports from Multinationals," The Economic Record, The Economic Society of Australia, vol. 55(148), pages 64-67, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kolev, Dobrin R. & Prusa, Thomas J., 1999. "Tariff policy for a monopolist in a signaling game," Journal of International Economics, Elsevier, vol. 49(1), pages 51-76, October.
    2. Dobrin R. Kolev & Thomas J. Prusa, 2021. "Dumping and double crossing: The (in)effectiveness of cost-based trade policy under incomplete information," World Scientific Book Chapters, in: Thomas J Prusa (ed.), Economic Effects of Antidumping, chapter 7, pages 129-152, World Scientific Publishing Co. Pte. Ltd..
    3. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455, Elsevier.
    4. Bouët, Antoine & Cassagnard, Patrice, 2013. "Strategic trade policy under asymmetric information with screening," Economic Modelling, Elsevier, vol. 32(C), pages 286-293.
    5. Stamland, Tommy, 1999. "Partially Informative Signaling," Journal of Economic Theory, Elsevier, vol. 89(1), pages 148-161, November.
    6. Robert W. Staiger & Kyle Bagwell, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March.
    7. Bagwell, Kyle & Staiger, Robert W., 2001. "Reciprocity, non-discrimination and preferential agreements in the multilateral trading system," European Journal of Political Economy, Elsevier, vol. 17(2), pages 281-325, June.
    8. Corden, W. Max, 1990. "Strategic trade policy : how new? how sensible?," Policy Research Working Paper Series 396, The World Bank.
    9. Akira Miyaoka, 2019. "The Signaling Effect of Emission Taxes Under International Duopoly," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(3), pages 691-720, March.
    10. Gene M. Grossman, 2016. "The Purpose of Trade Agreements," NBER Working Papers 22070, National Bureau of Economic Research, Inc.
    11. Furusawa, Taiji & Higashida, Keisaku & Ishikawa, Jota, 2003. "What information is needed for welfare-enhancing policies under international oligopoly?," Japan and the World Economy, Elsevier, vol. 15(1), pages 31-46, January.
    12. Liu, Shuo & Pei, Harry, 2020. "Monotone equilibria in signaling games," European Economic Review, Elsevier, vol. 124(C).
    13. Wane, Waly, 2000. "Tax evasion, corruption, and the remuneration of heterogeneous inspectors," Policy Research Working Paper Series 2394, The World Bank.
    14. Govindan, Srihari & Wilson, Robert B., 2008. "Decision-Theoretic Forward Induction," Research Papers 1986, Stanford University, Graduate School of Business.
    15. Sun, Ning & Yao, Hongxin, 2011. "Manipulable behavior in international trade," Economic Modelling, Elsevier, vol. 28(1-2), pages 60-66, January.
    16. Matschke, Xenia, 2003. "Tariff and quota equivalence in the presence of asymmetric information," Journal of International Economics, Elsevier, vol. 61(1), pages 209-223, October.
    17. In-Koo Cho, 2023. "Signaling games with endogenous types," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(1), pages 157-174, March.
    18. Santiago J. Rubio & María Dolores Alepuz, 2005. "Foreign Monopolies And Tariff Agreements Under Integrated Markets," Working Papers. Serie AD 2005-38, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    19. Eduardo Perez & Delphine Prady, 2012. "Complicating to Persuade?," Working Papers hal-03583827, HAL.
    20. Eduardo Perez-Richet, 2014. "Interim Bayesian Persuasion: First Steps," American Economic Review, American Economic Association, vol. 104(5), pages 469-474, May.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rut:rutres:199705. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/derutus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.