TY  - JOUR
AU  - Grossman,Gene M.
AU  - Maggi,Giovanni
TI  - Free Trade vs. Strategic Trade: A Peek into Pandora's Box
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6211
PY  - 1997
Y2  - October 1997
UR  - http://www.nber.org/papers/w6211
L1  - http://www.nber.org/papers/w6211.pdf
N1  - Author contact info:
Gene M. Grossman
International Economics Section
Department of Economics
Princeton University
Princeton, NJ 08544
Tel: 609/258-4823
Fax: 609/258-1374
E-Mail: grossman@princeton.edu

Giovanni Maggi
Department of Economics
Yale University
37 Hillhouse Avenue Rm 27
New Haven, CT 06511
Tel: 203/432-3569
Fax: 203/432-6323
E-Mail: giovanni.maggi@yale.edu
AB  - We investigate whether a welfare-maximizing government ought to pursue a program of" strategic trade intervention or instead commit itself to free trade when domestic firms will have an opportunity to manipulate the government's choice of the level of" intervention. Domestic firms may overinvest in physical and knowledge capital in a regime of" strategic intervention in order to influence the government's choice of subsidy. In the event commitment  to free trade may be desirable even in settings where profit-shifting would be" possible. We analyze the desirability of such a commitment when the government is well" informed about firms' types and actions, and when it suffers from an informational disadvantage."
ER  -