Incompletely Informed Policymakers and Trade Policy in Oligopolistic Industries

15 Pages Posted: 6 Jul 2004

See all articles by Mustafa O. Caglayan

Mustafa O. Caglayan

University of Sheffield

Murat Usman

Koc University - Department of Economics

Abstract

We study strategic trade policy design when governments are incompletely informed about the market demand. Two symmetric, homogeneous product Cournot firms, one in each country, compete in a third country market. Contrary to what common sense would suggest, we show that if governments are less informed on the stochastic market demand both countries will be better off. Also contrary to findings in the literature, we show that when the government is partially informed, although quantity controls would be optimal for both high and low levels of demand uncertainty, subsidies are preferred for intermediate levels.

Suggested Citation

Caglayan, Mustafa O. and Usman, Murat, Incompletely Informed Policymakers and Trade Policy in Oligopolistic Industries. Available at SSRN: https://ssrn.com/abstract=540591

Mustafa O. Caglayan (Contact Author)

University of Sheffield ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

Murat Usman

Koc University - Department of Economics ( email )

Rumeli Feneri Yolu
College of Administrative Sciences & Economics
Sariyer 80910, Istanbul
Turkey
+90 212 338 1553 (Phone)
+90 212 338 1653 (Fax)

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