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Shadow Pricing Market Access: A Trade Benefit Function Approach

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  • Chau, Nancy H.
  • Fare, Rolf

Abstract

Appropriate assessment of the social value of market access is at the core of a broad range of inquiries in trade research. A selection include: the appraisal of industry-level production and consumption distortions due to selective trade liberalization and partial tax reform; the construction of national-level quantity indicators of market access consistent with welfare change, and the use of international trade re-balancing as sanctions to discourage trade agreement violations, or as compensation in trade dispute settlement. In order to obtain shadow prices, we propose a new approach integrating the Luenberger bene t function and the directional output distance function. This yields a trade bene t function which represents trade preferences a la Meade in the context of a canonical general equilibrium model of trade. We rst show that our approach is in keeping with well-established and commonly used measurement techniques of trade welfare, for the standard trade expenditure function is in fact dual to the trade bene t function. We then show that this dual relation allows for a direct retrieval of the shadow values of net imports from the trade bene t function. The usefulness and operationality of our approach is then demonstrated in a series of applications and simulations.

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Bibliographic Info

Paper provided by Cornell University, Department of Applied Economics and Management in its series Working Papers with number 127015.

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Date of creation: 2007
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Handle: RePEc:ags:cudawp:127015

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Keywords: Trade Bene t Function; Shadow Prices of Net Imports; International Relations/Trade; Public Economics; F 13;

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References

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  15. Nancy H. Chau & Rolf F”re & Shawna Grosskopf, 2003. "Trade restrictiveness and efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 1079-1095, 08.
  16. Rolf Färe & Shawna Grosskopf, 2000. "Theory and Application of Directional Distance Functions," Journal of Productivity Analysis, Springer, vol. 13(2), pages 93-103, March.
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Cited by:
  1. Valentin Zelenyuk, 2011. "A Scale Elasticity Measure for Directional Distance Function and its Dual," CEPA Working Papers Series WP062011, School of Economics, University of Queensland, Australia.

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