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Strategic Trade Policy and Signalling with Unobservable Costs

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  • Donald Wright

Abstract

A two-period simultaneous signalling model is developed in which first period outputs not only signal a firm's cost to its competitor, but also signal its costs to a home country government. It is shown that the existence of second period home country strategic trade policy increases the incentives that both home and foreign high-cost firms have to misrepresent themselves as low cost. As a result, in the unique separating sequential equilibrium of this signalling game, second period strategic trade policy induces low-cost firms to distort their first period outputs more than otherwise. The major implication of this result is that the existence of second strategic trade policy can reduce welfare.
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Suggested Citation

  • Donald Wright, "undated". "Strategic Trade Policy and Signalling with Unobservable Costs," Discussion Papers 95/6, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:95/6
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    Cited by:

    1. Sun, Ning & Yao, Hongxin, 2011. "Manipulable behavior in international trade," Economic Modelling, Elsevier, vol. 28(1-2), pages 60-66, January.
    2. Matloob Piracha, 2004. "Export Subsidies and Countervailing Duties Under Asymmetric Information," Studies in Economics 0410, School of Economics, University of Kent.
    3. Bouët, Antoine & Cassagnard, Patrice, 2013. "Strategic trade policy under asymmetric information with screening," Economic Modelling, Elsevier, vol. 32(C), pages 286-293.
    4. Gasmi, Farid & Malin, Eric & Tandé, François, 2004. "Lobbying in Antidumping," IDEI Working Papers 320, Institut d'Économie Industrielle (IDEI), Toulouse.
    5. Sonali Deraniyagala & Ben Fine, 2000. "New Trade Theory Versus Old Trade Policy: A Continuing Enigma," Working Papers 102, Department of Economics, SOAS University of London, UK.
    6. Mark G. Herander & Brad Kamp, 1999. "Quantitative Restrictions in the Presence of Cost‐Based Informational Asymmetries," Southern Economic Journal, John Wiley & Sons, vol. 65(4), pages 870-884, April.
    7. Sun, Ning & Yao, Hongxin, 2011. "Manipulable behavior in international trade," Economic Modelling, Elsevier, vol. 28(1), pages 60-66.
    8. Hisashi Sawaki, 2015. "Educating voters for protection," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(7), pages 906-921, October.

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