Uncertainty and the choice of trade policy in oligopolistic industries

Russell Wade Cooper, Raymond Riezman

Research output: Contribution to journalArticle

43 Scopus citations

Abstract

This paper investigates the design of trade policies in an uncertain world. Governments in each of two countries select between direct quantity controls and subsidies in an attempt to shift profits in favour of domestic, imperfectly competitive firms. The equilibrium of this bilateral policy game depends critically on the variability of the environment. In a world of certainty, both governments would choose to regulate the behaviour of their firms through direct quantity controls. With a sufficient amount of uncertainty, both governments regulate their firms through subsidies. This result reflects an important tradeoff between the strategic advantages of direct quantity controls and flexibility gained by the use of subsidies.

Original languageEnglish (US)
Pages (from-to)129-140
Number of pages12
JournalReview of Economic Studies
Volume56
Issue number1
DOIs
StatePublished - Jan 1 1989

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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