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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

Related research

Keywords: Efficiency; tariffs; sequential trade;

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References

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  1. Eden, Benjamin, 2007. "Inefficient trade patterns: Excessive trade, cross-hauling and dumping," Journal of International Economics, Elsevier, vol. 73(1), pages 175-188, September.
  2. Mark Aguiar & Gita Gopinath, 2004. "Emerging market business cycles: the cycle is the trend," Working Papers 04-4, Federal Reserve Bank of Boston.
  3. Andrew K. Rose, 2002. "Do We Really Know that the WTO Increases Trade?," NBER Working Papers 9273, National Bureau of Economic Research, Inc.
  4. James H. Stock & Mark W. Watson, 2002. "Has the Business Cycle Changed and Why?," NBER Working Papers 9127, National Bureau of Economic Research, Inc.
  5. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings, Federal Reserve Bank of Kansas City, pages 9-56.
  6. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  7. 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.
  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. 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.
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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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