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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. Robert E. Baldwin, 1982. "The Political Economy of Protectionism," NBER Chapters, in: Import Competition and Response, pages 263-292, National Bureau of Economic Research, Inc.
    4. 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..
    5. Anne Krueger, 1995. "American Trade Policy: A Tragedy in the Making," Books, American Enterprise Institute, number 53526, September.
    6. 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.
    7. 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.
    8. Jagdish N. Bhagwati, 1982. "Import Competition and Response," NBER Books, National Bureau of Economic Research, Inc, number bhag82-1.
    9. 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.
    10. Avinash Dixit, 1989. "Trade and Insurance with Adverse Selection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(2), pages 235-247.
    11. 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. Huynh, Pham Duy Anh, 2022. "Non-Market Economy Status In Anti-Dumping Investigations And Proceedings: A Case Study Of Vietnam," OSF Preprints 2twmp, Center for Open Science.
    2. 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.
    3. Manzano, Osmel & Warner, Andrew, 2002. "Comments," LSE Research Online Documents on Economics 123111, London School of Economics and Political Science, LSE Library.
    4. 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.
    5. Meredith A. Crowley, 2003. "An introduction to the WTO and GATT," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 27(Q IV), pages 42-57.
    6. Araújo, José Tavares de & Macario, Carla & Steinfatt, Karsten, 2001. "Antidumping in the Americas," Comercio Internacional 4338, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    7. 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.
    8. Huynh, Pham Duy Anh, 2023. "Non-market economy status in anti-dumping investigations and proceedings: A case study of Vietnam," OSF Preprints esw4b, Center for Open Science.
    9. repec:dau:papers:123456789/6324 is not listed on IDEAS
    10. 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.

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    More about this item

    Keywords

    antidumping; contingent protection; insurance;
    All these keywords.

    JEL classification:

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

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