Antidumping Duties Under Asymmetric Cost Information

Xenia Matschke () and Anja Schöttner

No 2007-39, Working papers from University of Connecticut, Department of Economics

Abstract: In the last two decades, trade liberalization under GATT/WTO has been partly offset by an increase in antidumping protection due to the inclusion of sales below cost in the definition of dumping. The cost-based definition gives regulating authorities an opportunity to choose protection according to their liking. This paper investigates the domestic government's antidumping duty choice in an asymmetric information framework where the foreign firm's cost is observed by the domestic firm, but not by the government. To induce truthful revelation, the government can design a tariff schedule, contingent on firms' cost reports, accompanied by a threat to collect additional information for report verification (i.e., auditing) and, in case misreporting is detected, to set penalty duties. We devise a mechanism where the domestic and foreign firm may be asked to provide cost reports under which the full-information, i.e., efficient, tariffs are implementable. We also discuss the conditions under which this policy is optimal and when it may be better to instead adopt a "facts available" policy, i.e., a policy where no information from the foreign firm is solicited.

Keywords: antidumping duties; asymmetric information; trade protection (search for similar items in EconPapers)
JEL-codes: F13 F16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-reg
Date: 2007-10
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Persistent link: http://EconPapers.repec.org/RePEc:uct:uconnp:2007-39

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