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Incentive Compatible Trade Policies

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  • Robert C. Feenstra

Abstract

We consider a two country trade model with production uncertainty. If complete contingent markets do not exist, it is desirable for governments to adopt some trade policies to share the production risk. A full information policy involves income transfers across countries, which can be achieved by equal import tariffs and export subsidies. With incomplete information we consider incentive compatible trade policies, which are designed to be truth revealing while partially sharing the production risk. In this case the tariff in one country may differ from the export subsidy abroad.

Suggested Citation

  • Robert C. Feenstra, 1986. "Incentive Compatible Trade Policies," NBER Working Papers 1977, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1977
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    1. 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.
    2. Newbery, David M G & Stiglitz, Joseph E, 1982. "The Choice of Techniques and the Optimality of Market Equilibrium with Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 223-246, April.
    3. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    4. Elhanan Helpman & Assaf Razin, 1978. "Welfare Aspects of International Trade in Goods and Securities," The Quarterly Journal of Economics, Oxford University Press, vol. 92(3), pages 489-508.
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    Cited by:

    1. Bourguignon, Francois & Verdier, Thierry, 2000. "Is financial openness bad for education? A political economy perspective on development," European Economic Review, Elsevier, vol. 44(4-6), pages 891-903, May.
    2. Jensen, Richard & Thursby, Marie, 1990. "Tariffs with private information and reputation," Journal of International Economics, Elsevier, vol. 29(1-2), pages 43-67, August.
    3. Christophe Gouel & Sébastien Jean, 2015. "Optimal Food Price Stabilization in a Small Open Developing Country," World Bank Economic Review, World Bank Group, vol. 29(1), pages 72-101.
    4. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters,in: The Economics of Food Price Volatility, pages 261-306 National Bureau of Economic Research, Inc.
    5. J. David Richardson, 1987. "International Coordination of Trade Policy," NBER Working Papers 2293, National Bureau of Economic Research, Inc.
    6. Gaisford, James D. & Kerr, William A., 1992. "Which Country Loses The Least In A Trade War?," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 36(03), December.
    7. J. David Richardson & Robert S. Strauss & Michihiko Kunihiro & Edmund T. Pratt, Jr, 1988. "Trade Policy," NBER Chapters,in: International Economic Cooperation, pages 167-232 National Bureau of Economic Research, Inc.
    8. Stahl, Dale O. & Turunen-Red, Arja H., 1995. "Tariff games: Cooperation with random variation in political regimes," European Journal of Political Economy, Elsevier, vol. 11(2), pages 215-238, June.

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