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Tariffs and Privatization Policy in a Bilateral Trade Model with Corporate Social Responsibility

Lee, Sang-Ho and Xu, Lili (2017): Tariffs and Privatization Policy in a Bilateral Trade Model with Corporate Social Responsibility.

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Abstract

This paper considers an international bilateral trade model with corporate social responsibility (CSR) and examines the strategic interaction between tariffs and privatization policy. We demonstrate that strategic tariff in a private market is higher than that in a mixed market, while efficient tariff in a private market is lower than that in a mixed market. We then show that privatization policy raises strategic tariff and worsens (improves) domestic welfare when the degree of CSR is low (high). Further, we investigate endogenous choice of privatization policy and demonstrate that both the countries choose nationalization policy even though privatization policy is globally optimal when the degree of CSR is high. This indicates the existence of a prisoner’s dilemma in choosing privatization policy in a bilateral trade model with higher CSR.

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