ENDOGENOUS SEQUENCING IN STRATEGIC TRADE-POLICY GAMES UNDER UNCERTAINTY

This paper examines a strategic trade policy game with endogenous timi ng. A trade-off between commitment and flexibility is identified. The equilibrium timing of trade policy decisions is shown to highly depend on the degree of demand uncertainty. When demand uncertainty is low, countervailing duties will never be used because the home government a lways sets its import tariff before the foreign government sets its ex port subsidy. When demand uncertainty reaches a threshold level, the h ome government starts to find it optimal to move second with positive probability. As a result, we provide an economic rationale for the pre vailing use of countervailing duties in practice.