Contingent Trade Policy and Economic Efficiency

Phillip McCalman, Frank Stähler and Gerald Willmann ()

No 3424, CESifo Working Paper Series from CESifo

Abstract: This paper develops an efficiency theory of contingent trade policies. We model the competition for a domestic market between one domestic and one foreign firm as a pricing game under incomplete information about production costs. The cost distributions are asymmetric because the foreign firm has to pay a trade cost. We show that the foreign firm prices more aggressively to overcome its cost disadvantage. The resulting possibility of an inefficient allocation justifies the use of contingent trade policy on efficiency grounds. Contingent trade policy that seeks to maximize global welfare can avoid the potential inefficiency. National governments, on the other hand, make excessive use of contingent trade policy due to rent shifting motives. The expected inefficiency of national policy is larger (smaller) for low (high) trade costs compared to the laissez-faire case. In general, there is no clear ranking between the laissez-faire outcome and a contingent national trade policy.

Keywords: contingent trade policy; efficiency (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp3424.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Unavailable

Related works:
Journal Article: Contingent trade policy and economic efficiency (2019)
Working Paper: Contingent trade policy and economic efficiency (2013)
Working Paper: Contingent trade policy and economic efficiency (2011)
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:ces:ceswps:_3424

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().