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Contingent protection as better insurance

Author

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  • Thomas J. Prusa

    () (Rutgers University)

  • Ronald D. Fischer

    () (Univ. de Chile)

Abstract

We formalize the notion that GATT exceptions such as antidumping and escape clause actions can act as insurance for import competing sectors affected by adverse price shocks. We use a general equilibrium model with several import competing sectors and assume incomplete markets so that agents cannot contract insurance. We show that these measures are superior to uniform tariffs as insurance mechanisms. Moreover, we demonstrate that the optimal uniform policy may involve a tariff at all, but rather might entail an export tax. We also show that a tax cum subsidy policy (i.e., taxing all sectors in order to subsidize the shocked sector) improves welfare.

Suggested Citation

  • Thomas J. Prusa & Ronald D. Fischer, 1999. "Contingent protection as better insurance," Departmental Working Papers 199902, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:199902
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    References listed on IDEAS

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    1. Avinash Dixit, 2005. "Trade And Insurance With Imperfectly Observed Outcomes," World Scientific Book Chapters,in: An Inframarginal Approach To Trade Theory, chapter 5, pages 75-84 World Scientific Publishing Co. Pte. Ltd..
    2. Robert W. Staiger & Frank A. Wolak, 1994. "Measuring Industry-Specific Protection: Antidumping in the United States," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1994 Micr), pages 51-118.
    3. Avinash Dixit, 2005. "Trade And Insurance With Moral Hazard," World Scientific Book Chapters,in: An Inframarginal Approach To Trade Theory, chapter 4, pages 53-74 World Scientific Publishing Co. Pte. Ltd..
    4. Staiger, Robert W., 1995. "International rules and institutions for trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 29, pages 1495-1551 Elsevier.
    5. Wendy L. Hansen & Thomas J. Prusa, 1995. "The Road Most Taken: the Rise of Title VII Protection," The World Economy, Wiley Blackwell, vol. 18(2), pages 295-313, March.
    6. Avinash Dixit, 1989. "Trade and Insurance with Adverse Selection," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 235-247.
    7. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-837, December.
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    Cited by:

    1. Crowley, Meredith A., 2006. "Do safeguard tariffs and antidumping duties open or close technology gaps?," Journal of International Economics, Elsevier, vol. 68(2), pages 469-484, March.
    2. Chad P. Bown, 2011. "Taking Stock of Antidumping, Safeguards and Countervailing Duties, 1990–2009," The World Economy, Wiley Blackwell, vol. 34(12), pages 1955-1998, December.
    3. Meredith A. Crowley, 2003. "An introduction to the WTO and GATT," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 42-57.
    4. Michael D. Bordo & Barry Eichengreen & Douglas A. Irwin, 1999. "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?," NBER Working Papers 7195, National Bureau of Economic Research, Inc.
    5. Marcel Vaillant & Marcelo Olarreaga, 2011. "Micro and Macro Determinants of trade temporary barriers: the Brazilian case over the last two decades," Documentos de Trabajo (working papers) 0711, Department of Economics - dECON.

    More about this item

    Keywords

    antidumping; contingent protection; insurance;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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