Contingent Protection, and the International Distribution of Excess Capacity.

The implications of demand and cost fluctuations, both anticipated and unanticipated, for the international distribution of industrial excess capacity are explored. Three partial equilibrium models of excess capacity and contingent protection policies which are correlated with distress on the part of domestic firms are constructed. Conventional tariff-equivalent protection measures are substantial understatements of the long-run effects of contingent protection when sunk costs in the form of capacity are large. The contingent protection exacerbates excess capacity on average in the industry. Secondly, anticipation of the policy 'triggers' for implementation of contingent protection fosters collusive behaviour in the industry.