Klaus Wallner: SITE - Stockholm Institute of Transition Economics and East European Economies, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden
Abstract: This paper considers domestic product standards that do not raise the willingness to pay by consumers but increase the costs for foreign suppliers of serving the market. It is shown in a Cournot triopoly model that such standards can be used as strategic tool to raise domestic welfare by creating asymmetry between local and foreign producers. A country can raise its welfare by concluding mutual recognition agreements with a strict subset of its trading partners. In that case exclusively the largest countries agree on mutual recognition of their home standards, to the detriment of the country with the smaller home market.
23 pages, August 19, 1998
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