From Inefficient Behind-the-Border Policies to Inefficient Trade Agreements: A Two-Tier Asymmetric Information Model. Issue 636 (6th July 2020)

• Record Type: Journal Article
• Authors: Bouët, Antoine; Laborde, David; Martimort, David
• Is Part Of: Economic journal. Volume 131:Issue 636(2021)
• Page Start: 1555
• Page End: 1592
• Publication Date: 2020-07-06
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; 330.05
• DOI: 10.1093/ej/ueaa085
• Languages: English
• ISSNs: 0013-0133

Abstract

Abstract: We consider a general equilibrium model of international trade with two layers of informational asymmetries. Private information of Home producers on costs affects the design of 'behind-the-border' policies reflecting the political influence of inefficient producers. Home's supply is contracted, causing trade, and motivating the use of tariffs. Eliminating those instruments by means of a trade agreement may become impossible once Home has also private information on its redistributive concerns. Home, when subject to strong influence by inefficient producers, might be reluctant to adopt free trade, which may lead to limited tariff cuts and give a role for export subsidies.