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Protectionist Reputations and the Threat of Voluntary Export Restraint *
Author(s) -
Jans Ivette,
Wall Howard J.,
Hariharan Govind
Publication year - 1995
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.1995.tb00063.x
Subject(s) - protectionism , reputation , incentive , economics , government (linguistics) , welfare , international economics , turnover , public economics , monetary economics , international trade , microeconomics , market economy , law , linguistics , philosophy , management , political science
Voluntary export restraints are often administered in such a way that each firm's post‐VER output allocation is positively related to its output under free trade. When this is true, a credible threat of a future VER will induce foreign firms to dump in the current period, decreasing the domestic price (the Yano effect), and possibly increasing welfare. We show that if an importing government's preferences are private information and if the government makes a series of VER decisions, there may exist an incentive for a welfare‐maximizing government that normally prefers free trade to maintain a protectionist reputation by imposing a VER.