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Trade and Insurance with Adverse Selection

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Author Info
Dixit, Avinash K

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Abstract

This paper considers a small, open economy with a safe sector and a risky sector. The probability of success in the risky activity differs across individuals and is private information. It is shown that policies that sustain informationally-constrained Pareto optima should not include tariffs. A laissez-faire competitive equilibrium, if it exists, is Pareto optimal. These results contrast with previous literature on the role of tariffs as insurance, where private risk markets are assumed away in an ad hoc manner. Copyright 1989 by The Review of Economic Studies Limited.

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 56 (1989)
Issue (Month): 2 (April)
Pages: 235-47
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Handle: RePEc:bla:restud:v:56:y:1989:i:2:p:235-47

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  4. Ronald D. Fischer & 1998, 1998. "Contingent protection as better insurance," Documentos de Trabajo 49, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
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  5. Bin Xu, 2003. "Trade and financial liberalization with asymmetric information in bank financing," Journal of Policy Reform, Taylor and Francis Journals, vol. 6(2), pages 57-69, June. [Downloadable!] (restricted)
  6. Wen-Li Chen & Xiaokai Yang & Jeffrey D. Sachs, 1999. "An Infra-marginal Analysis of the Ricardian Model," CID Working Papers 13, Center for International Development at Harvard University. [Downloadable!]
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  7. Gerda Dewit, 1996. "Export Insurance Subsidisation: Risk Coverage, Strategic Export Promotion or Aid?," Working Papers 9614, Department of Economics, University of Glasgow. [Downloadable!]
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  8. Jeffrey D. Sachs & Xiaokai Yang & Dingsheng Zhang, 1999. "Trade Pattern and Economic Development when Endogenous and Exogenous Comparative Advantages Coexist," CID Working Papers 3, Center for International Development at Harvard University. [Downloadable!]
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  9. Coleman, Jonathan R. & Jones, Chris, 1992. "Measuring welfare changes from commodity price stabilization in small open economies," Policy Research Working Paper Series 1021, The World Bank. [Downloadable!]
  10. Chris Jones, 1996. "Rice Price Stabilisation in Indonesia A Reply," Bulletin of Indonesian Economic Studies, Taylor and Francis Journals, vol. 32(2), pages 115-117, August. [Downloadable!] (restricted)
  11. Ricardo Hausmann & Michael Gavin, 1996. "Asegurar la estabilidad y el crecimiento en una región propensa a las sacudidas: los retos de políticas para América Latina," RES Working Papers 4021, Inter-American Development Bank, Research Department. [Downloadable!]
  12. Jaume Ventura & Fernando A. Broner, 2006. "Globalization and Risk Sharing," NBER Working Papers 12482, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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