Tariffs in an Economy with Incomplete Markets and Unemployment
This paper examines the optimal labor contract in a small open economy with incomplete markets under international price uncertainty. The effect on employment, wages, and profits of different realizations of the state of nature is studied and agents' preferences concerning the implementation of a tariff are determined. The implicit contract equilibrium is shown to be constrained Pareto optimal; unanticipated tariff policy cannot be Pareto improving over free trade.
|Date of creation:||Sep 1988|
|Publication status:||published as "Terms of Trade Uncertainty, Incomplete markets, and Unemployment," International Economic Review, 33, pp. 881-894, Noveber, 1992|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
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- Lapan, Harvey E, 1976. "International Trade, Factor Market Distortions, and the Optimal Dynamic Subsidy," American Economic Review, American Economic Association, vol. 66(3), pages 335-346, June.
- Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
- Steven J. Matusz, 1985. "The Heckscher-Ohlin-Samuelson Model with Implicit Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1313-1329.
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