IDEAS home Printed from https://ideas.repec.org/a/cje/issued/v18y1985i2p258-72.html
   My bibliography  Save this article

Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete

Author

Listed:
  • Jonathan Eaton
  • Gene M. Grossman

Abstract

Free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile - ex post, and markets for contingent claims are incomplete. The government can improve social welfare by using commercial policy that serves as a partial substitute for missing insurance markets. Using a combination of analytical and simulation techniques we demonstrate that optimal policy for this purpose will often have an anti-trade bias. We also show that the usual preference by economists for factor or product taxes and subsidies over tariffs and export subsidies may not be justified in this context.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Jonathan Eaton & Gene M. Grossman, 1985. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 258-272, May.
  • Handle: RePEc:cje:issued:v:18:y:1985:i:2:p:258-72
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0008-4085%28198505%2918%3A2%3C258%3ATAIOCP%3E2.0.CO%3B2-V
    Download Restriction: only available to JSTOR 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

    as
    1. Eaton, Jonathan & Rosen, Harvey S., 1980. "Labor supply, uncertainty, and efficient taxation," Journal of Public Economics, Elsevier, vol. 14(3), pages 365-374, December.
    2. Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-1082, December.
    3. Thomas J. Rothenberg & Kenneth R. Smith, 1971. "The Effect of Uncertainty on Resource Allocation in a General Equilibrium Model," The Quarterly Journal of Economics, Oxford University Press, vol. 85(3), pages 440-459.
    4. Grossman, Gene M & Shapiro, Carl, 1982. "A Theory of Factor Mobility," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 1054-1069, October.
    5. John S. Flemming & Stephen J. Turnovsky & Murray C. Kemp, 1977. "On the Choice of Numeraire and Certainty Price in General Equilibrium Models of Price Uncertainty," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 573-583.
    6. Kydland, Finn, 1977. "Equilibrium solutions in dynamic dominant-player models," Journal of Economic Theory, Elsevier, vol. 15(2), pages 307-324, August.
    7. Eaton, Jonathan, 1979. "The Allocation of Resources in an Open Economy with Uncertain Terms of Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(2), pages 391-403, June.
    8. Jonathan Eaton & Harvey S. Rosen, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 357-364.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. S. Lael Brainard, 1991. "Protecting Losers: Optimal Diversification, Insurance, and Trade Policy," NBER Working Papers 3773, National Bureau of Economic Research, Inc.
    2. Brent Kreider, 2008. "Optimal Wage Taxation When Human Capital And Employment Are Endogenous," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 660-675, October.
    3. James Gaisford & Olena Ivus, 2014. "Should Smaller Countries Be More Protectionist? The Diversification Motive for Tariffs," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 845-862, September.
    4. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty and optimal taxation: In defense of commodity taxes," Journal of Public Economics, Elsevier, vol. 56(2), pages 291-310, February.
    5. Sartzetakis, Eftichios S. & Tsigaris, Panagiotis D., 2009. "Uncertainty and the double dividend hypothesis," Environment and Development Economics, Cambridge University Press, vol. 14(5), pages 565-585, October.
    6. Schindler, Dirk, 2003. "Optimal Income Taxation with a Risky Asset: The Triple Income Tax," CoFE Discussion Papers 03/11, University of Konstanz, Center of Finance and Econometrics (CoFE).
    7. Nuno Limão & Giovanni Maggi, 2015. "Uncertainty and Trade Agreements," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 1-42, November.
    8. Harris Dellas & Ana Fernandes, 2006. "The Allocation of Resources under Uncertainty," Diskussionsschriften dp0606, Universitaet Bern, Departement Volkswirtschaft.
    9. Coleman, Jonathan R. & Jones, Chris, 1992. "Measuring welfare changes from commodity price stabilization in small open economies," Policy Research Working Paper Series 1021, The World Bank.
    10. Weinreich, Daniel, 2013. "The perception of distributive fairness and optimal taxation under uncertainty," MPRA Paper 48912, University Library of Munich, Germany.
    11. Dirk Schindler, 2006. "Optimal Income Taxation with a Risky Asset – The Triple Income Tax," CESifo Working Paper Series 1834, CESifo.
    12. Ned Corron & Xue-Zhong He & Frank Westerhoff, 2007. "Butter mountains, milk lakes and optimal price limiters," Applied Economics Letters, Taylor & Francis Journals, vol. 14(15), pages 1131-1136.
    13. R. Cellini & L. Lambertini, 2000. "Differential Games and Oligopoly Theory: An Overview," Working Papers 369, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Christopher L. Gilbert & Panos Varangis, 2003. "Globalization and International Commodity Trade with Specific Reference to the West African Cocoa Producers," NBER Working Papers 9668, National Bureau of Economic Research, Inc.
    15. Jean-Bernard Chatelain & Kirsten Ralf, 2020. "How macroeconomists lost control of stabilization policy: towards dark ages," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 27(6), pages 938-982, November.
    16. Luboš Smutka & Michal Steininger & Mansoor Maitah & Eva Rosochatecká & Anna Belova & Salim Nassir, 2013. "Retail food prices in the Czech Republic - the influence of selected factors," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(2), pages 481-492.
    17. Martin Flodén, 2006. "Labour Supply and Saving Under Uncertainty," Economic Journal, Royal Economic Society, vol. 116(513), pages 721-737, July.
    18. Vito Tanzi & Howell H. Zee, 1997. "Fiscal Policy and Long-Run Growth," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 179-209, June.
    19. Grossman, Gene M & Razin, Assaf, 1985. "Direct Foreign Investment and the Choice of Technique under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 37(4), pages 606-620, December.
    20. Ana Paula Martins, 2008. "Uninsurable Risks: Uncertainty in Production, the Value of Information and Price Dispersion," Economics Bulletin, AccessEcon, vol. 28(8), pages 1.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    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:cje:issued:v:18:y:1985:i:2:p:258-72. 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: . General contact details of provider: https://edirc.repec.org/data/ceaaaea.html .

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Prof. Werner Antweiler (email available below). General contact details of provider: https://edirc.repec.org/data/ceaaaea.html .

    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.