TARIFF POLICY AND ENTRY WITH COST-BASED INFORMATIONAL ASYMMETRIES

Authors

  • Mark G. Herander,

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  • Brad Kamp

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    • *We would like to thank Jonathan Eaton, William Neilson, and two anonymous referees for helpful comments on earlier versions of the manuscript. Mark Herander would like to thank the University of South Florida Division of Sponsored Research for financial support.


1 Professor, Department of Economics, University of South Florida, Tampa, Phone 1–813-974-6540, Fax 1–813-974-6510 E-mail Mherande@bsn01.bsn.usf.edu

2 Assistant Professor, Department of Economics, University of South Florida, Tampa Phone 1–813-974-6549, Fax 1–813-974-6510 E-mail Bkamp@bsn01.bsn.usf.edu

Abstract

This study introduces a cost-based informational asymmetry into a two period signaling model. We examine the effects of import tariff policy within this environment of incomplete information and compare them to the standard, full information effects. When tariff rates can be credibly fixed, the standard effects of tariff policy may be significantly altered. For example, lower tariffs may discourage foreign entry because of the induced signaling effects of tariff policy. Moreover, because the impact of tariff policy depends on the cost structure of domestic firms, uninformed policymakers will not be able to predict the qualitative effects of tariff policy. (JEL F12, F13)

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