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Market Structure and Trade Policy under Asymmetric Information

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  • Mohammad Amin

Abstract

The paper compares tariffs and import quotas when the home firm has private information about its true cost and the government offers incentive contracts to extract this information. We highlight the role of underlying market structure in determining the ranking of the two policy instruments. Our results show that quotas are at least as efficient as tariffs in implementing the optimal level of protection and strictly more for a wide range of market structures. The exact condition for this is identified. Welfare-based ranking of the two instruments follows from this.

Suggested Citation

  • Mohammad Amin, 2004. "Market Structure and Trade Policy under Asymmetric Information," International Trade 0402004, EconWPA.
  • Handle: RePEc:wpa:wuwpit:0402004
    Note: Type of Document - pdf; prepared on Win98; pages: 31
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    File URL: http://econwpa.repec.org/eps/it/papers/0402/0402004.pdf
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    References listed on IDEAS

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    1. 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.
    2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    3. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    4. Qui, Larry D., 1994. "Optimal strategic trade policy under asymmetric information," Journal of International Economics, Elsevier, vol. 36(3-4), pages 333-354, May.
    5. 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.
    6. Motoshige Itoh & Yoshiyasu Ono, 1982. "Tariffs, Quotas, and Market Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 97(2), pages 295-305.
    7. Martin K. Perry, 1982. "Oligopoly and Consistent Conjectural Variations," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 197-205, Spring.
    8. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
    9. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
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    More about this item

    Keywords

    Tariffs versus Quotas; Asymmetric Information; Conjectural Variations;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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