To evade or to pay: A perfect bayesian equilibrium in a government-importer game

• Main Authors: De La Rosa, Mary Patricia G., Respicio, Jerrie Mae Hyvi P., Samson, Craig Brendon G.
• Format: text
• Language: English
• Published: Animo Repository 2013
• Subjects: Bayesian statistical decision theory; Econometrics; Liability insurance; Indemnity against liability; Economics
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/10695
• Institution: De La Salle University

This paper studies the phenomenon of tariff evasion using a simple signaling model. Perfect Bayesian equilibrium is used to determine importer's optimal actions (to evade or to pay his tariff liability) after observing the signal of the government (high tariff rates or low tariff rates), given the importers belief on the true type of the government (strict or not strict). This study found that in the separating equilibrium, importers will chooses to pay their respective tariff liability upon observing a low announcement coming from a strict government. On the other hand, upon observing high tariff rates with the belief that it came from a Not Strict government, importers will opt to evade. Meanwhile, pooling equilibrium suggests that regardless of the perceived type of government when a high tariff is implemented, importer will opt to pay his liability