Further Thoughts on Strategic Trade Policy under Asymmetric Information

Chung Yuan Fu, Shirley J. Ho

Department of Economics, National Chengchi University, Taipei City.

DOI: 10.4236/me.2013.411075                

Abstract

We study the informational impacts of multilateral voluntary export restraints (henceforth VERs) in an international trade model with differentiated products [1]. We first show that with competing mechanisms, the two firms’ lying intentions are strategic complements and will increase with the degree of product differentiation. Next, we show that each government will design their VERs menus to allow for only partial revelation. Contrary to the single intervention case [2], a separating equilibrium where each country’s domestic firm truthfully reveals its private information does not exist under multilateral policy interventions. Finally, we demonstrate that trade retaliation, when the two governments’ VERs are positively related, will happen when the government believes that its domestic firm is more likely to be inefficient.

Keywords

Strategic Trade Policy; Voluntary Export Restraints; Partial Information Revelation

Conflicts of Interest

The authors declare no conflicts of interest.

References

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