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Efficient Barriers to Trade: A Sequential Trade Model with Heterogeneous Agents

  • Benjamin Eden

    ()

    (Department of Economics, Vanderbilt University)

This paper studies a flexible price version of the Prescott (1975) hotels model. Unlike rigid price versions of the model, here the equilibrium outcome is efficient if potential buyers have the same downward sloping demand curve or if the probability of becoming active does not depend on their type. In the absence of these conditions the equilibrium outcome may not be efficient even in the second best (constrained) sense. I apply the analysis to discuss barriers to trade that are motivated by efficiency considerations. I show that a tariff, for example, may lead to Pareto improvement.

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File URL: http://www.accessecon.com/pubs/VUECON/vu07-w02.pdf
File Function: First version, 2007
Download Restriction: no

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0702.

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Date of creation: Jan 2007
Date of revision:
Handle: RePEc:van:wpaper:0702
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Robert E. Lucas, Jr. & Michael Woodford, 1993. "Real Effects of Monetary Shocks in an Economy with Sequential Purchases," NBER Working Papers 4250, National Bureau of Economic Research, Inc.
  2. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
  3. Eden, Benjamin, 1990. "Marginal Cost Pricing When Spot Markets Are Complete," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1293-1306, December.
  4. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115, pages 69-102.
  5. James H. Stock & Mark W. Watson, 2003. "Has the Business Cycle Changed and Why?," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 159-230 National Bureau of Economic Research, Inc.
  6. James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
  7. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
  8. Benjamin Eden, 2005. "Inefficient Trade Patterns: Excessive Trade, Cross-Hauling, and Dumping," Vanderbilt University Department of Economics Working Papers 0503, Vanderbilt University Department of Economics.
  9. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
  10. James H. Stock & Mark W. Watson, 2003. "Has the business cycle changed?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 9-56.
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