Informationally Efficient Trade Barriers

Andrea Moro () and Matthew Mitchell ()

Public Economics from EconWPA

Abstract: Why are trade barriers often used to protect home producers, even at the cost of introducing deadweight losses from higher commodity prices? We add an informational friction to the standard textbook argument in favor of free trade, and show that trade restrictions may be a more effcient policy than a lump sum transfer to the displaced producers. Trade barriers, while generating deadweight losses, have the benefit that they do not generate a need for compensation. When the policy maker does not know the amount that should be transferred, the risk of over- compensating may make trade barrier more efficient.

Keywords: Trade barriers; Distortionary policies (search for similar items in EconPapers)
JEL-codes: D6 D7 H (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2005-03-10
Note: Type of Document - pdf; pages: 19
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwppe:0503004

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