Distributing the Gains from Trade With Incomplete Information
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. We solve for the optimal government policies. 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 policies take the form of nonlinear tariffs, so that both buyers and sellers of the import face an effective price which exceeds its world level. We find that the tariffs are never complete, in the sense of bringing prices (or all individuals back to their initial level. Rather, it will always be possible to make some individuals strictly better off than at the initial prices, while ensuring that no persons are worse off.
|Date of creation:||Mar 1990|
|Date of revision:|
|Publication status:||published as Economics and Politics, 3(1) March 1991, pp. 21-39|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Lewis, T.R. & Ware, R. & Feenstra, R., 1988. "Eliminating Price Supports: A Political Economy Perspective," Papers 319, California Davis - Institute of Governmental Affairs.
- Robert C. Feenstra & Tracy R. Lewis, 1987.
"Negotiated Trade Restrictions with Private Political Pressure,"
NBER Working Papers
2374, National Bureau of Economic Research, Inc.
- Feenstra, Robert C & Lewis, Tracy R, 1991. "Negotiated Trade Restrictions with Private Political Pressure," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1287-307, November.
- Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3277. 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: ()
If references are entirely missing, you can add them using this form.