IDEAS home Printed from
   My bibliography  Save this article

Distributing The Gains From Trade With Incomplete Information


  • Robert C. Feenstra
  • Tracy R. Lewis


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. Using a model where agents have private information about their endowments, we solve for the optimal government policy 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 policy takes the form of nonlinear tariffs. These tariffs are never complete, in the sense of bringing prices back to their initial level, but always allow some individuals to be strictly better off than at the initial prices. Copyright 1991 Blackwell Publishers Ltd..

Suggested Citation

  • 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, March.
  • Handle: RePEc:bla:ecopol:v:3:y:1991:i:1:p:21-39

    Download full text from publisher

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    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.
    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.
    3. 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.
    4. Magee,Stephen P. & Brock,William A. & Young,Leslie, 1989. "Black Hole Tariffs and Endogenous Policy Theory," Cambridge Books, Cambridge University Press, number 9780521377003, March.
    5. Robert C. Feenstra & Tracy R. Lewis, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1287-1307.
    6. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Feenstra, Robert C. & Lewis, Tracy R., 1994. "Trade adjustment assistance and Pareto gains from trade," Journal of International Economics, Elsevier, vol. 36(3-4), pages 201-222, May.
    2. Wolfgang Mayer & Raymond Riezman, 2013. "Voter Preferences for Trade Policy Instruments," World Scientific Book Chapters,in: International Trade Agreements and Political Economy, chapter 11, pages 169-183 World Scientific Publishing Co. Pte. Ltd..
    3. Margarita Katsimi & Thomas Moutos, 2005. "Inequality and Relative Reliance on Tariffs: Theory and Evidence," CESifo Working Paper Series 1457, CESifo Group Munich.
    4. Rodrik, Dani, 1994. "What does the Political Economy Literature on Trade Policy (Not) Tell Us That We Ought to Know?," CEPR Discussion Papers 1039, C.E.P.R. Discussion Papers.
    5. Thierry Verdier, 2005. "Intégration commerciale « socialement responsable » : une approche en termes d'économie politique," Revue d’économie du développement, De Boeck Université, vol. 13(4), pages 55-121.
    6. 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.
    7. Limao, Nuno & Panagariya, Arvind, 2007. "Inequality and endogenous trade policy outcomes," Journal of International Economics, Elsevier, vol. 72(2), pages 292-309, July.
    8. Andrea Moro & Matthew F. Mitchell, 2005. "Informationally Efficient Trade Barriers," Public Economics 0503004, EconWPA.
    9. Anne O. Krueger, 1996. "Introduction to "The Political Economy of American Trade Policy"," NBER Chapters,in: The Political Economy of American Trade Policy, pages 1-10 National Bureau of Economic Research, Inc.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecopol:v:3:y:1991:i:1:p:21-39. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.