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Distributing the Gains from Trade With Incomplete Information

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Author Info
Robert Feenstra
Tracy R. Lewis

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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. 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3277.

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Date of creation: Mar 1990
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Handle: RePEc:nbr:nberwo:3277

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References listed on IDEAS
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  1. 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. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
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  3. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
  2. Robert C. Feenstra & Tracy R. Lewis, 1991. "Trade Adjustment Assistance and Pareto Gains From Trade," NBER Working Papers 3845, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Margarita Katsimi & Thomas Moutos, 2005. "Inequality and Relative Reliance on Tariffs: Theory and Evidence," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  4. Andrea Moro & Matthew F. Mitchell, 2005. "Informationally Efficient Trade Barriers," Public Economics 0503004, EconWPA. [Downloadable!]
  5. repec:eab:tradew:216 is not listed on IDEAS
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