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Tariffs, Price Conjectures And Welfare In An Open Spatial Economy

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  • Dennis Heffley
  • Panos Hatzipanayotou
  • Pavlos Mourdoukoutas

Abstract

ABSTRACT This paper examines the implications of a tariff increase in a spatial model of an open economy with price conjectures between domestic and foreign producers of non‐identical goods. Households are mobile and location and rent adjustments are influenced by pricing policies. It is shown that, although the equilibrium configuration of the economy is sensitive to the prevailing combination of conjectural variations, the effects of a tariff increase are qualitatively consistent across alternative, and perhaps asymmetric, price conjectures. The tariff reduces the endogenous mill price of the import, increases its post‐tariff delivered price throughout the economy, and induces a decrease in both the mill and delivered price of the domestic good. Location and rent adjustments cause the common equilibrium level of household utility to decline with an increase in the tariff, regardless of the particular mix of conjectural variations. Domestic consumer utility can Only be restored to its initial (world norm) level by out‐migration.

Suggested Citation

  • Dennis Heffley & Panos Hatzipanayotou & Pavlos Mourdoukoutas, 1993. "Tariffs, Price Conjectures And Welfare In An Open Spatial Economy," Papers in Regional Science, Wiley Blackwell, vol. 72(1), pages 87-100, January.
  • Handle: RePEc:bla:presci:v:72:y:1993:i:1:p:87-100
    DOI: 10.1111/j.1435-5597.1993.tb01864.x
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