|Title:||Strategic Trade Policy and Signalling with Unobservable Costs|
|Publisher:||Department of Economics|
|Abstract:||A two-period simultaneous signalling model is developed in which first period outputs not only signal a firm's cost to its competitor, but also signal its costs to a home country government. It is shown that the existence of second period home country strategic trade policy increases the incentives that both home and foreign high-cost firms have to misrepresent themselves as low cost. As a result, in the unique separating sequential equilibrium of this signalling game, second period strategic trade policy induces low-cost firms to distort their first period outputs more than otherwise. The major implication of this result is that the existence of second strategic trade policy can reduce welfare.|
|Type of Work:||Working Paper|
|Appears in Collections:||Working Papers - Economics|
|ECON 1994-198.pdf||1.3 MB||Adobe PDF|
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