Contingent Protection as Better Insurance
AbstractWe formalize the notion that GATT exceptions such as antidumping and escape clause actions can act as insurance for import competing sectors affected by adverse price shocks. We use a general equilibrium model with several import competing sectors and assume incomplete markets so that agents cannot contract insurance. We show that these measures are superior to uniform tariffs as insurance mechanisms. Moreover, we demonstrate that the optimal uniform policy may not involve a tariff at all, but rather might entail an export tax. We also show that a tax cum subsidy policy (i.e., taxing all sectors in order to subsidize the shocked sector) improves welfare.
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Date of creation: Feb 1999
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Other versions of this item:
- Thomas J. Prusa & Ronald D. Fischer, 1999. "Contingent protection as better insurance," Departmental Working Papers 199902, Rutgers University, Department of Economics.
- Ronald D. Fischer & 1998, 1998. "Contingent protection as better insurance," Documentos de Trabajo 49, Centro de Economía Aplicada, Universidad de Chile.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
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