Endogenous sequencing in strategic trade policy games under uncertainty

Research output: Journal PublicationsJournal Article (refereed)

7 Citations (Scopus)

Abstract

This paper examines a strategic trade policy game with endogenous timing. A trade-off between commitment and flexibility is identified. The equilibrium timing of trade policy decisions is shown to highly depend on the degree of demand uncertainty. When demand uncertainty is low, countervailing duties will never be used because the home government always sets its import tariff before the foreign government sets its export subsidy. When demand uncertainty reaches a threshold level, the home government starts to find it optimal to move second with positive probability. As a result, we provide an economic rationale for the prevailing use of countervailing duties in practice.
Original languageEnglish
Pages (from-to)353-369
Number of pages17
JournalOpen Economies Review
Volume8
Issue number4
DOIs
Publication statusPublished - 1 Oct 1997

Keywords

  • Commitment
  • Endogenous timing
  • Flexibility
  • Strategic trade policy

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