Strategic Trade Policy Design with Asymmetric Information and Public Contracts

S. Lael Brainard and David Martimort

The Review of Economic Studies, 1996, vol. 63, issue 1, 81-105

Abstract: This paper examines strategic trade policy under asymmetric information with publicly observable contracts. We analyse both the cases of unilateral and bilateral intervention. We find that the requirement of incentive compatibility undermines the strategic precommitment effect when public funds are costly, even with no restrictions on the form of the policies. Second, when firms sell substitute goods, the introduction of a rival interventionist government may reduce the cost of informational rents to each government. Third, it turns out that under bilateral intervention there exists a continuum of symmetric equilibria with levels of output and corresponding levels of welfare in the exporting countries which can be ranked. The requirement of ex post participation constraints for the firm limits the set of subsidies which can be offered to the firm. In particular, under bilateral intervention, the equilibrium levels of output which are implemented under adverse selection are below their values under ex ante uncertainty, i.e., below the equilibrium levels of output which are achieved when firms sign their contracts before the realization of their costs.

Date: 1996
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
http://hdl.handle.net/10.2307/2298116 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:63:y:1996:i:1:p:81-105.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().