Strategic Trade Policy and Signalling with Unobservable Costs |
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Authors: | Donald J Wright |
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Institution: | University of Sydney, NSW 2006, Australia |
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Abstract: | In an environment in which home firm costs are private information, home firm output can signal these costs to a foreign competitor and a home policymaker. High-cost home firms have an incentive to misrepresent themselves as low-cost. This is understood by the foreign firm and the home policymaker and results in the first-period optimal per-unit output subsidy to the home firm being less than it would be if home firm output was not a signal of home firm costs. These results are extended to the case of simultaneous signalling and signalling through price. |
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