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Incentives, Protection and Time Consistency

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  • Wright, Donald J.

Abstract

Given symmetric information, it is assumed that the optimal policy for a policy maker is to commit to future removal of tariff protection as this provides the form with a greater incentive to undertake cost reducing effort than otherwise. This policy is shown to be time inconsistent and as a result less cost reducing effort is undertaken than in the credible commitment solution. The introduction of asymmetric information weakens this last result as it allows the policy maker to credibly commit to at least some removal of tariff protection. As a consequence, the expected value of the policy maker's objective function may be greater under asymmetric information than symmetric information.

Suggested Citation

  • Wright, Donald J., 1992. "Incentives, Protection and Time Consistency," Working Papers 174, University of Sydney, School of Economics.
    • Handle: RePEc:syd:wpaper:2123/7530
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    Cited by:

    1. Aditya Bhattacharjea, 2002. "Infant Industry Protection Revisited," International Economic Journal, Taylor & Francis Journals, vol. 16(3), pages 115-133.
    2. Gervais, Jean-Philippe & Lapan, Harvey E., 2002. "Time consistent export quotas in an oligopolistic world market," Journal of International Economics, Elsevier, vol. 56(2), pages 445-463, March.
    3. Richard Damania, 2003. "Protectionist Lobbying and Strategic Investment," The Economic Record, The Economic Society of Australia, vol. 79(244), pages 57-69, March.
    4. Kresimir Zigic, 2011. "Strategic Interactions in Markets with Innovative Activity: The Cases of Strategic Trade Policy and Market Leadership," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b06, May.
    5. Aurora Gómez Galvarriato & César L. Guerrero-Luchtenberg, 2005. "Impatience, International Competitiveness, and Political," DEGIT Conference Papers c010_015, DEGIT, Dynamics, Economic Growth, and International Trade.
    6. Delia Baghdasaryan & Krešimir Žigić, 2010. "Tariffs, market conduct and government commitment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 91-122, January.

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