Choice of Trade Policy with Incomplete Information

Ning, Haokai (2020): Choice of Trade Policy with Incomplete Information.

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).

• Item Type: MPRA Paper
• Language: English
• Keywords: Uncertainty, incomplete information, Bayesian Nash equilibrium, strategic trade policy, Cournot competition
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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