Ignorance Is Bliss as Trade Policy

Anthony Creane

Review of International Economics, 1998, vol. 6, issue 4, 616-24

Abstract: Consider domestic consumers that purchase from foreign firms. A presumption would be that consumers prefer being informed when quality is uncertain and exogenous. However, in a multifirm framework based on previous models, consumers can be worse off if they are informed of the quality. Further, in the Salop-circle model, consumers may prefer not learning even though expected high-quality output is greater with learning. Moreover, the possibility that consumers prefer uncertainty increases with the probability that products are of low quality. Essentially, the benefit of screening quality (better matching) can be less than its cost (higher prices from market segmentation). Copyright 1998 by Blackwell Publishing Ltd.

Date: 1998
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