Tariff Policy and Entry with Cost-Based Informational Asymmetries

Mark G Herander and Brad Kamp

Economic Inquiry, 1999, vol. 37, issue 1, 60-73

Abstract: This study introduces a cost-based informational asymmetry into a two-period signaling model. The authors examine the effects of import tariff policy within this environment of incomplete information and compare them to the standard, full information effects. When tariff rates can be credibly fixed, the standard effects of tariff policy may be significantly altered. For example, lower tariffs may discourage foreign entry because of the induced signaling effects of tariff policy. Moreover, because the impact of tariff policy depends on the cost structure of domestic firms, uninformed policymakers will not be able to predict the qualitative effects of tariff policy. Copyright 1999 by Oxford University Press.

Date: 1999
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