Antidumping as Strategic Trade Policy Under Asymmetric Information

Xenia Matschke and Anja Schöttner

No 2008-19, Working papers from University of Connecticut, Department of Economics

Abstract: In the last two decades, trade liberalization under GATT/WTO has been partly offset by an increase in antidumping protection. Economists have argued convincingly that this is partly due to the inclusion of sales below cost in the definition of dumping during the GATT Tokyo Round. The introduction of the cost- based dumping definition gives regulating authorities a better opportunity to choose protection according to their liking. This paper investigates the domestic government's antidumping duty choice in an asymmetric information framework where the foreign firm's cost is observed by the domestic firm, but not by the government. To induce truthful revelation, the government can design a tariff schedule, contingent on firms' cost reports, accompanied by a threat to collect additional information for report verification (i.e., auditing) and, in case misreporting is detected, to set penalty duties. We show that depending on the concrete assumptions, the domestic government may not only be able to extract the true cost information, but also succeeds in implementing the full-information, governmental welfare-maximizing duty. In this case, the antidumping framework within GATT/WTO does not only offer the means to pursue strategic trade policy disguised as fair trade policy, but it also helps overcome the informational problems with regard to correctly determining the optimal strategic trade policy.

Keywords: antidumping duties; asymmetric information; trade protection; strategic trade policy. (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2008-06, Revised 2010-01
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (2)

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https://media.economics.uconn.edu/working/2008-19.pdf Full text (original version) (application/pdf)

Related works:
Journal Article: Antidumping as Strategic Trade Policy under Asymmetric Information (2013)
Working Paper: Antidumping as Strategic Trade Policy Under Asymmetric Information (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2008-19

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