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Distributing The Gains From Trade With Incomplete Information

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Author Info

  • FEENTRA, R.C.
  • LEWIS, T.R.

Abstract

We argue that the incomplete information which the government has about domestic agents means that tariffs become an optimal instrument to protect them from import competition. Using a model where agents have private information about their endowments, we solve for the optimal government policy subject to the political constraint of ensuring Pareto gains from trade, the incentive compatibility constraint, and the government's budget constraint. We find that the optimal policy takes the form of nonlinear tariffs. These tariffs are never complete, in the sense of bringing prices back to their initial level, but always allow some individuals to be strictly better off than at the initial prices. Copyright 1991 Blackwell Publishers Ltd..

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Bibliographic Info

Paper provided by California Davis - Institute of Governmental Affairs in its series Papers with number 352.

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Length: 24 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:fth:caldav:352

Contact details of provider:
Postal: UNIVERSITY OF CALIFORNIA DAVIS, INSTITUTE OF GOVERNMENTAL AFFAIRS, RESEARCH PROGRAM IN APPLIED MACROECONOMICS AND MACRO POLICY, DAVIS CALIFORNIA 95616 U.S.A.

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Keywords: information ; competition ; international trade ; tariffs;

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References

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  1. Lewis, Tracy R. & Feenstra, Robert & Ware, Roger, 1989. "Eliminating price supports : A political economy perspective," Journal of Public Economics, Elsevier, vol. 40(2), pages 159-185, November.
  2. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  3. Robert C. Feenstra & Jagdish N. Bhagwati, 1982. "Tariff Seeking and the Efficient Tariff," NBER Chapters, in: Import Competition and Response, pages 245-262 National Bureau of Economic Research, Inc.
  4. Robert C. Feenstra & Tracy R. Lewis, 1987. "Negotiated Trade Restrictions with Private Political Pressure," NBER Working Papers 2374, National Bureau of Economic Research, Inc.
  5. Cassing, James H. & Hillman, Arye L., 1985. "Political influence motives and the choice between tariffs and quotas," Journal of International Economics, Elsevier, vol. 19(3-4), pages 279-290, November.
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Cited by:
  1. Andrea Moro & Matthew F. Mitchell, 2005. "Informationally Efficient Trade Barriers," Public Economics 0503004, EconWPA.
  2. Feenstra, R.C. & Lewis, T.R., 1989. "Trade Adjustment Assistance And Pareto Gains From Trade," Papers 343, California Davis - Institute of Governmental Affairs.
  3. Limao, Nuno & Panagariya, Arvind, 2007. "Inequality and endogenous trade policy outcomes," Journal of International Economics, Elsevier, vol. 72(2), pages 292-309, July.
  4. Thierry Verdier, 2005. "Intégration commerciale « socialement responsable » : une approche en termes d'économie politique," Revue d’économie du développement, De Boeck Université, vol. 19(4), pages 55-121.
  5. Dani Rodrik, 1994. "What Does the Political Economy Literature on Trade Policy (Not) Tell UsThat We Ought To Know?," NBER Working Papers 4870, National Bureau of Economic Research, Inc.
  6. Matthew F. Mitchell & Andrea Moro, 2006. "Persistent Distortionary Policies with Asymmetric Information," American Economic Review, American Economic Association, vol. 96(1), pages 387-393, March.
  7. Margarita Katsimi & Thomas Moutos, 2005. "Inequality and Relative Reliance on Tariffs: Theory and Evidence," CESifo Working Paper Series 1457, CESifo Group Munich.

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