TARIFFS FOR A FOREIGN MONOPOLIST UNDER INCOMPLETE INFORMATION

When the domestic government is better informed about demand in the do mestic market than a foreign monopolist that exports to the domestic m arket, the domestic government can use its tariff to signal about dema nd. In the signalling equilibrium, the domestic government uses a tari ff which is larger than the optimal tariff under complete information. However, it is possible that welfare in the signalling equilibrium is lower than welfare when the domestic government is uncertain about de mand. The domestic government can avoid the cost of signalling by dele gating tariff-setting to a revenue-maximising agent.