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Tariff Compensation Without Omniscience

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  • PETER G. WARR

Abstract

The piecemeal application of second‐best arguments to practical policy‐making is highly dangerous. This paper attempts to demonstrate this by taking the recent Australian debate over ‘tariff compensation’ as an example. The attempt to ‘compensate’ for tariff‐induced distortions in output prices by means of input subsidies is shown to lead to informational problems so serious that the pursuit of such a policy in practice seems unwise. This point is argued by means of extensive numerical examples. These suggest that the potential welfare gains from tariff compensation, optimally applied, are small relative to the potential costs of well‐intentioned but erroneous interventions.

Suggested Citation

  • Peter G. Warr, 1979. "Tariff Compensation Without Omniscience," The Economic Record, The Economic Society of Australia, vol. 55(1), pages 20-32, March.
    • Handle: RePEc:bla:ecorec:v:55:y:1979:i:1:p:20-32
    DOI: 10.1111/j.1475-4932.1979.tb02198.x
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    References listed on IDEAS

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    1. Peter G. Warr, 1977. "Tariff Compensation via Input Subsidies," The Economic Record, The Economic Society of Australia, vol. 53(4), pages 508-516, December.
    2. Peter G. Warr, 1978. "Shadow Pricing, Information, and Stability in a Simple Open Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 92(1), pages 95-116.
    3. Stuart Harris, 1975. "Tariff Compensation: Sufficient Justification For Assistance To Australian Agriculture?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 19(3), pages 131-145, December.
    4. Warr, Peter G, 1977. "Tariff Compensation via Input Subsidies," The Economic Record, The Economic Society of Australia, vol. 53(144), pages 508-516, December.
    5. Lloyd, Peter J., 1975. "Tariff Compensation: An Undesirable Policy," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 19(3), pages 1-8, December.
    6. Peter J. Lloyd, 1975. "Tariff Compensation: An Undesirable Policy," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 19(3), pages 146-153, December.
    7. Harris, Stuart, 1975. "Tariff Compensation: Sufficient Justification For Assistance To Australian Agriculture?," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 19(3), pages 1-15, December.
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    Cited by:

    1. Geoff W. Edwards, 1987. "Agricultural Policy Debate: A Survey," The Economic Record, The Economic Society of Australia, vol. 63(2), pages 129-143, June.

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