Tariffs and Privatization Policy in a Bilateral Trade with Corporate Social Responsibility

This paper considers corporate social responsibility (CSR) in an international bilateral trade model and examines the strategic interaction between tariffs and privatization policy. We show that strategic tariff in a private market is higher than that in a mixed market, while Pareto-efficient tariff in a private market is lower than that in a mixed market. We then show that privatization policy raises strategic tariff and worsens (improves) domestic welfare when the degree of CSR is low (high). When we endogeneize the strategic choice of privatization policy between the two countries, we show that both countries choose nationalization policy even though privatization policy is globally efficient when the degree of CSR is high.