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Designing Policies to Open Trade

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  • Robert C. Feenstra
  • Tracy R. Lewis
  • John McMillan

Abstract

In this paper we consider recent proposals to auction U.S. import quotas. using the funds so obtained to encourage relocation out of the protected industries. We argue that the information available to the government, or lack thereof, is a critical factor in understanding these policies. In a world or full information, it makes little sense to use auction quotas rather than tariffs. Similarly, it is unclear why an elaborate program of temporary protection is needed, rather than immediately opening trade and compensating people with an income transfer. When the government has Limited information, however, these policies become quite sensible and may even be optimal.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3258.

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Date of creation: Feb 1990
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Publication status: published as Economics and Politics, 2(3), November 1990, pp. 223-240
Handle: RePEc:nbr:nberwo:3258

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  1. Dixit, Avinash, 1989. "Trade and Insurance with Imperfectly Observed Outcomes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(1), pages 195-203, February.
  2. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 61-73, January.
  3. Richard A. Jensen & Marie Thursby, 1990. "Tariffs with Private Information and Reputation," NBER Working Papers 2959, National Bureau of Economic Research, Inc.
  4. Kala Krishna, 1989. "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," NBER Working Papers 2840, National Bureau of Economic Research, Inc.
  5. Raquel Fernandez, 1988. "Tariffs in an Economy with Incomplete Markets and Unemployment," NBER Working Papers 2705, National Bureau of Economic Research, Inc.
  6. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Feenstra, Robert C & Lewis, Tracy R, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(4), pages 1287-307, November.
  9. Kyle Bagwell & Robert W. Staiger, 1988. "The Role Of Export Subsisies When Product Quality Is Unknown," NBER Working Papers 2584, National Bureau of Economic Research, Inc.
  10. James E. Anderson, 1988. "The Relative Inefficiency of Quotas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511789, December.
  11. James A. Brander & Barbara J. Spencer, 1989. "Trade Adjustment Assistance: Welfare and Incentive Effects of Payments to Displaced Workers," NBER Working Papers 3071, National Bureau of Economic Research, Inc.
  12. Dixit, Avinash & Norman, Victor, 1986. "Gains from trade without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 111-122, August.
  13. Kenneth A. Froot, 1989. "Credibility, Real Interest Rates, and the Optimal Speed of Trade Liberalization," NBER Working Papers 2358, National Bureau of Economic Research, Inc.
  14. Dixit, Avinash, 1987. "Trade and insurance with moral hazard," Journal of International Economics, Elsevier, vol. 23(3-4), pages 201-220, November.
  15. Michael H. Riordan & Robert W. Staiger, 1988. "Sectoral Shocks and Structural Unemployment," NBER Working Papers 2522, National Bureau of Economic Research, Inc.
  16. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
  17. Richard A. Brecher & Ehsan U. Choudhri, 1990. "Gains from International Factor Movements without Lump-Sum Compensation: Taxation by Location versus Nationality," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 44-59, February.
  18. Engel, Charles & Kletzer, Kenneth M., 1991. "Trade policy under endogenous credibility," Journal of Development Economics, Elsevier, vol. 36(2), pages 213-228, October.
  19. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Grossman, Gene M & Horn, Henrik, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(4), pages 767-87, November.
  21. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  22. 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.
  23. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, Econometric Society, vol. 47(3), pages 679-88, May.
  24. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-83, December.
  25. Feenstra, Robert C. & Lewis, Tracy R., 1994. "Trade adjustment assistance and Pareto gains from trade," Journal of International Economics, Elsevier, vol. 36(3-4), pages 201-222, May.
  26. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 511-18, October.
  27. Grossman, Gene M & Shapiro, Carl, 1982. "A Theory of Factor Mobility," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(5), pages 1054-69, October.
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Cited by:
  1. Dinopoulos, Elias & Lewis, Tracy R. & Sappington, David E. M., 1995. "Optimal industrial targeting with unknown learning-by-doing," Journal of International Economics, Elsevier, vol. 38(3-4), pages 275-295, May.
  2. 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.

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