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Efficient Barriers to Trade: A Sequential Trade Model with Heterogeneous Agents

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  • Benjamin Eden

    ()
    (Department of Economics, Vanderbilt University)

Abstract

This paper studies a flexible price version of the Prescott (1975) hotels model. Unlike rigid price versions of the model, here the equilibrium outcome is efficient if potential buyers have the same downward sloping demand curve or if the probability of becoming active does not depend on their type. In the absence of these conditions the equilibrium outcome may not be efficient even in the second best (constrained) sense. I apply the analysis to discuss barriers to trade that are motivated by efficiency considerations. I show that a tariff, for example, may lead to Pareto improvement.

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File URL: http://www.accessecon.com/pubs/VUECON/vu07-w02.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0702.

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Date of creation: Jan 2007
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Handle: RePEc:van:wpaper:0702

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Efficiency; tariffs; sequential trade;

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  1. Mark Aguiar & Gita Gopinath, 2004. "Emerging Market Business Cycles: The Cycle is the Trend," NBER Working Papers 10734, National Bureau of Economic Research, Inc.
  2. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  3. Benjamin Eden, 2005. "Inefficient Trade Patterns: Excessive Trade, Cross-Hauling, and Dumping," Vanderbilt University Department of Economics Working Papers 0503, Vanderbilt University Department of Economics.
  4. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
  5. Robert E. Lucas, Jr. & Michael Woodford, 1993. "Real Effects of Monetary Shocks in an Economy with Sequential Purchases," NBER Working Papers 4250, National Bureau of Economic Research, Inc.
  6. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
  7. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
  8. James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
  9. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 9-56.
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Cited by:
  1. Raymond Deneckere & James Peck, 2012. "Dynamic Competition With Random Demand and Costless Search: A Theory of Price Posting," Econometrica, Econometric Society, vol. 80(3), pages 1185-1247, 05.

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