miyagiwa_05

We examine the standard assumption in the strategic trade policy literature that governments possess complete information. Assuming instead that firms have better information, we explore the long-term incentives for firms to consistently disclose information to their governments in the standard setting. We find that with quantity competition firms disclose both demand and cost information to the governments, thereby giving some justification to the literature’s omniscient-government assumption. Further, the equilibrium exhibits an informational prisoner’s dilemma with demand uncertainty, but not with cost uncertainty. With price competition, however, firms have no incentives to disclose information.

Title:	Information and disclosure in strategic trade policy
Number:	05-30
Author:	Anthony Creane and Kaz Miyagiwa
Issue Date:	November 2005
Abstract:	We examine the standard assumption in the strategic trade policy literature that governments possess complete information. Assuming instead that firms have better information, we explore the long-term incentives for firms to consistently disclose information to their governments in the standard setting. We find that with quantity competition firms disclose both demand and cost information to the governments, thereby giving some justification to the literature’s omniscient-government assumption. Further, the equilibrium exhibits an informational prisoner’s dilemma with demand uncertainty, but not with cost uncertainty. With price competition, however, firms have no incentives to disclose information.