Mandated Countertrade as a Strategic Commitment

Posted: 19 Feb 2014

See all articles by Lars Stole

Lars Stole

University of Chicago - Booth School of Business

Tore Ellingsen

Stockholm School of Economics - Department of Economics; Norwegian School of Economics (NHH) - Department of Economics

Date Written: March 1, 1995

Abstract

Mandated countertrade is a policy to restrict unilateral imports. A country’s government thereby in effect commits domestic firms not to purchase from a foreign trading partner unless there are reciprocal sales. We argue that the policy may be a rational response to fundamental contracting failures, our key assumption being that sellers are incompletely informed about buyers’ valuations. In line with observed practices, the analysis suggests that an optimal mandated countertrade policy will target high mark-up imports and low mark-up exports. Implications for global welfare are ambiguous and depend upon the extent of a double coincidence of wants.

Keywords: Mandated countertrade, Trade policy, Asymmetric information

JEL Classification: F13, F12

Suggested Citation

Stole, Lars A. and Ellingsen, Tore, Mandated Countertrade as a Strategic Commitment (March 1, 1995). Journal of International Economics, Vol. 40, No. 1, 1996. Available at SSRN: https://ssrn.com/abstract=2397273

Lars A. Stole (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)

Tore Ellingsen

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9260 (Phone)
+46 8 31 3207 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

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N-5035 Bergen
Norway

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