Endogenous sequencing in strategic trade policy games under uncertainty
Open Economies Review
Kluwer Academic Publishers
Commitment, Endogenous timing, Flexibility, Strategic trade policy
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.
Copyright © 1997 Kluwer Academic PublishersAccess to external full text or publisher's version may require subscription.
Wong, K. P., & Chow, K. W. (1997). Endogenous sequencing in strategic trade policy games under uncertainty. Open Economies Review, 8(4), 353-369.