Tariff Discrimination versus MFN under Incomplete Information

Saltuk Ozerturk and Kamal Saggi ()

Journal of International Trade & Economic Development, 2005, vol. 14, issue 2, pages 197-208

Abstract: Does the presence of incomplete information affect a country's incentive to discriminate across exporters with different costs? If so, how? From a global perspective, does the presence of incomplete information weaken or strengthen the case for MFN? We examine these questions in a model of imperfect competition with two asymmetric exporters and a single importing country who is imperfectly informed about exporters' costs. Despite the lack of complete information, the importing country prefers discrimination to MFN. However, equilibrium tariff dispersion is lower under incomplete information. As a result, the global welfare gain from MFN, while still positive, is smaller under incomplete information relative to the case of complete information.

Keywords: Tariffs; most favoured nation clause; oligopoly; trade policy (search for similar items in EconPapers)
Date: 2005
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