Distributing the Gains from Trade With Incomplete Information
AbstractWe 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. We solve for the optimal government policies. 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 policies take the form of nonlinear tariffs, so that both buyers and sellers of the import face an effective price which exceeds its world level. We find that the tariffs are never complete, in the sense of bringing prices (or all individuals back to their initial level. Rather, it will always be possible to make some individuals strictly better off than at the initial prices, while ensuring that no persons are worse off.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3277.
Date of creation: Mar 1990
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Other versions of this item:
- Robert C. Feenstra & Tracy R. Lewis, 1991. "Distributing The Gains From Trade With Incomplete Information," Economics and Politics, Wiley Blackwell, vol. 3(1), pages 21-39, 03.
- Feentra, R.C. & Lewis, T.R., 1990. "Distributing The Gains From Trade With Incomplete Information," Papers 352, California Davis - Institute of Governmental Affairs.
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