DP4643 Innovative (Imitative) Effort and Tariffs in Developing Countries: Policy Implications of Different Market Conducts, Government Commitment Levels, and Information (A)symmetries

Author(s): Delia Ionascu, Kresimir Zigic
Publication Date: September 2004
Keyword(s): government non-commitment regime, innovative (imitative) effort, optimal tariff protection, symmetric versus asymmetric information
JEL(s): F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4643

We analyse a simple ?tariffs-cum-foreign competition? policy targeted at enhancing the competitive position of a domestic, developing country firm that competes with its developed country counterpart on the domestic market and that carries out innovative (imitative) effort. We evaluate this policy with respect to social welfare, type of oligopoly conduct, information requirement, time consistency and possibility of manipulative behaviour and conclude that the most robust policy set-up is that in which the domestic government is unable to pre-commit to the level of its policy. Finally, we examine this policy, allowing for asymmetric information, and show that the corresponding social welfare may be higher than under perfect information set-up.