Uncertainty and the Choice of Trade Policy in Oligopolistic Industries

Russell Cooper and Raymond Riezman

Chapter 16 in International Trade Agreements and Political Economy, 2013, pp 287-298 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis paper investigates the design of trade policies in an uncertain world. Governments in each of two countries select between direct quantity controls and subsidies in an attempt to shift profits in favour of domestic, imperfectly competitive firms. The equilibrium of this bilateral policy game depends critically on the variability of the environment. In a world of certainty, both governments would choose to regulate the behaviour of their firms through direct quantity controls. With a sufficient amount of uncertainty, both governments regulate their firms through subsidies. This result reflects an important tradeoff between the strategic advantages of direct quantity controls and flexibility gained by the use of subsidies.

Keywords: International Trade; Political Economy; Theory of International Free Trade Agreements; Customs Unions; Tariff Dynamics; Storable Votes (search for similar items in EconPapers)
Date: 2013
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Journal Article: Uncertainty and the Choice of Trade Policy in Oligopolistic Industries (1989)
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