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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. Grossman, Gene M & Shapiro, Carl, 1982. "A Theory of Factor Mobility," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 1054-69, October.
  2. Charles Engel & Kenneth Kletzer, 1987. "Trade Policy under Endogenous Credibility," NBER Working Papers 2449, National Bureau of Economic Research, Inc.
  3. 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.
  4. Jensen, Richard & Thursby, Marie, 1990. "Tariffs with private information and reputation," Journal of International Economics, Elsevier, vol. 29(1-2), pages 43-67, August.
  5. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Lewis, T.R. & Ware, R. & Feenstra, R., 1988. "Eliminating Price Supports: A Political Economy Perspective," Papers 319, California Davis - Institute of Governmental Affairs.
  9. Kala Krishna, 1989. "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," NBER Working Papers 2840, National Bureau of Economic Research, Inc.
  10. Feenstra, Robert C & Lewis, Tracy R, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1287-307, November.
  11. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
  12. Raquel Fernandez, 1988. "Tariffs in an Economy with Incomplete Markets and Unemployment," NBER Working Papers 2705, National Bureau of Economic Research, Inc.
  13. Dixit, Avinash, 1987. "Trade and insurance with moral hazard," Journal of International Economics, Elsevier, vol. 23(3-4), pages 201-220, November.
  14. Gene M. Grossman & Henrik Horn, 1987. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," NBER Working Papers 2159, National Bureau of Economic Research, Inc.
  15. Riordan, Michael H & Staiger, Robert W, 1993. "Sectoral Shocks and Structural Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 611-29, August.
  16. Bagwell, Kyle & Staiger, Robert W., 1989. "The role of export subsidies when product quality is unknown," Journal of International Economics, Elsevier, vol. 27(1-2), pages 69-89, August.
  17. 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.
  18. 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.
  19. Froot, Kenneth A., 1988. "Credibility, real interest rates, and the optimal speed of trade liberalization," Journal of International Economics, Elsevier, vol. 25(1-2), pages 71-93, August.
  20. Milgrom, Paul R, 1979. "A Convergence Theorem for Competitive Bidding with Differential Information," Econometrica, Econometric Society, vol. 47(3), pages 679-88, May.
  21. James E. Anderson, 1988. "The Relative Inefficiency of Quotas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511789, December.
  22. Brander, James A. & Spencer, Barbara J., 1994. "Trade adjustment assistance : Welfare and incentive effects of payments to displaced workers," Journal of International Economics, Elsevier, vol. 36(3-4), pages 239-261, May.
  23. Dixit, Avinash, 1989. "Trade and Insurance with Imperfectly Observed Outcomes," The Quarterly Journal of Economics, MIT Press, vol. 104(1), pages 195-203, February.
  24. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  25. 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.
  26. 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.
  27. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Cited by:
  1. 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.
  2. 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.

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