TY  - GEN
AB  - This paper develops an effciency 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 incurs a trade cost to serve the domestic market.
We show that the foreign firm prices more aggressively to overcome its cost disadvantage.
This creates the possibility of an inefficient allocation, justifying the use of contingent trade
policy on efficiency grounds. Despite an environment of asymmetric information, contingent
trade policy that seeks to maximize global welfare can be designed to avoid the potential
ineffciency. 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.
DA  - 2013
DO  - 10.4119/unibi/2915414
KW  - Contingent Trade Policy
KW  - Efficiency
LA  - eng
PY  - 2013
SN  - 2196-2723
SP  - 38-
TI  - Contingent Trade Policy and Economic Efficiency
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29154148
Y2  - 2024-11-25T03:55:07
ER  -