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Baumol-Tobin and the Welfare Costs of National Security Border Delays

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  • Hui Huang
  • John Whalley

Abstract

The implications of national security related procedures for trade flows at border points in OECD countries has become a major topic of commentary in popular press. We discuss whether the economic costs of border delays are represented solely by time spent in awaiting processing. This has been the basis of calculations in Canada-US-Ontario (2004) and Ontario Chamber of Commerce (2004, 2005) of advalorem equivalent tariff representations of the time delays involved. While time can be a significant part of the social cost of security related delays in customs clearance, added costs also arise from the behavioral response to delays and looking only at the time delays at the border can be misleading. We use a formulation where border delays occur with certainty and add to the fixed costs of importing in any period. We develop analytics for the case where there is endogeneity both in the frequency of transactions and in the size of individual transactions across the border in the tradition of the well known Baumol (1952) and Tobin (1952) inventory theoretical analysis of the demand for money.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12296.

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Date of creation: Jun 2006
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Publication status: published as Huang, Hui & Whalley, John, 2008. "Baumol-Tobin and the welfare costs of national security border delays," Economics Letters, Elsevier, vol. 99(2), pages 290-292, May.
Handle: RePEc:nbr:nberwo:12296

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  1. W. J. Baumol & H. D. Vinod, 1970. "An Inventory Theoretic Model of Freight Transport Demand," Management Science, INFORMS, vol. 16(7), pages 413-421, March.
  2. Edgar Cudmore & John Whalley, 2005. "Border Delays and Trade Liberalization," NBER Chapters, in: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14, pages 391-406 National Bureau of Economic Research, Inc.
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Cited by:
  1. Carlos Martí Sempere, 2011. "A Survey of the European Security Market," Economics of Security Working Paper Series 43, DIW Berlin, German Institute for Economic Research.

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