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We study strategic trade policy design when governments are incompletely informed about the market demand. Two symmetric, homogeneous product Cournot firms, one in each country, compete in a third country market. Contrary to what common sense would suggest, we show that if governments are less informed on the stochastic market demand both countries will be better off. Also contrary to findings in the literature, we show that when the government is partially informed, although quantity controls would be optimal for both high and low levels of demand uncertainty, subsidies are preferred for intermediate levels. IThe well-known Brander and Spencer (1985) model shows that, under complete information, a government adopts an export subsidy if the domestic firm competes with a foreign firm in terms of quantity. Subsequently, many others along with Eaton and Grossman (1986), Neary (1991) and Klette (1994) have investigated related issues under complete information. 1 However, policymakers hardly have complete information on various aspects of the economic environment, such as the cost structure of firms, demand conditions, or the mode of competition. In response to this shortcoming, researchers have begun to consider the effects of asymmetric information on the choice of trade policy. 2 We contribute to this line of literature by investigating (i) whether a better informed government can implement strategic trade policies effectively to achieve higher welfare in the domestic country, and (ii) whether better (less) informed governments favor policies with less (more) flexibility and more (less) commitment as suggested by Cooper and Riezman (1989). It turns out that variations in the amount of

A sovereign borrower seeks to raise funds internationally to finance a fixed-size project, which no single lender can finance alone. Lenders cannot lend more than their endowments, which are private information. A coordination failure arises therefore, some socially desirable projects may not be financed, even if ex post feasible. There are multiple equilibria, and a conflict exists between lenders about which equilibrium to coordinate on. When endowments are volatile, some lenders prefer an equilibrium in which the project is financed with probability p < 1, even if ex post feasible. The government eliminates such equilibria by offering a sufficiently high return, only if endowment volatility is small.

This paper sutudies the role of debt in committing a seller not to trade at a low price. We consider a discrete‐time finite‐horizon buyer–seller relationship. The seller makes an upfront relationship‐specific investment, which is financed with debt. Debt then is repaid gradually to mitigate the hold‐up risk. Even though debt is renegotiable, under the assumption that with a small probability renegotiation may fail and may lead to inefficient liquidation, debt still can be used as a commitment device. We solve for renegotiation proof dynamic debt contracts that are optimal for the seller and show that debt is repaid over the entire course of the relationship with declining repayments.

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