ENDOGENOUS PROBABILITY OF PROTECTION AND FIRM BEHAVIOR

This paper studies the strategic reactions of firms to protectionist policies that are enforced with endogenous probability. This probability is a function of firms' actions. Firms in the country that may adopt the protectionist measures try to increase the probability of sanctions, while foreign firms try to reduce this probability. A simple framework is used to derive general results for uncertain protection. This framework is used to analyze the responses to specific protectionist policies such as antidumping legislation and restrictions on the import market share. Finally, the paper studies the welfare implications of the model.