Tariffs with Private Information and Reputation

30 Pages Posted: 25 Jul 2007 Last revised: 4 Aug 2021

See all articles by Richard A. Jensen

Richard A. Jensen

University of Notre Dame - Department of Economics

Marie C. Thursby

Georgia Institute of Technology - Strategic Management Area; National Bureau of Economic Research (NBER)

Date Written: May 1989

Abstract

When governments choose trade policy, rarely do they have complete information, At the time decisions are made, policy makers have only estimates of market responses, as well as the responses of foreign governments. In many realistic situations, even the policy objectives of other governments may not be known. For example, the balance of constitutional powers in the United States is often cited as a source of confusion as to objectives of U.S. trade policy. In this paper we examine the Bayesian Nash equilibria of several noncooperative tariff games with incomplete information, In the models examined, the home country has private information about whether its government is a low or high tariff type. If the foreign government is uncertain about this type in a one-shot game, its Nash equilibrium tariff will be lower (higher) than if it knew the home government were a low (high) tariff type. In two multistage games, misleading behavior by the home government is shown to be an equilibrium strategy for sufficiently high discount factors. Whether the uncertainty is persistent or can be resolved is shown to be important for welfare results in the multistage setting. In the models examined, tariff rules do not necessarily dominate discretionary policy.

Suggested Citation

Jensen, Richard A. and Thursby, Marie C., Tariffs with Private Information and Reputation (May 1989). Available at SSRN: https://ssrn.com/abstract=461391

Richard A. Jensen (Contact Author)

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

Marie C. Thursby

Georgia Institute of Technology - Strategic Management Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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