PERFORMANCE CONTINGENT PROTECTION*

William Kaempfer, Edward Tower and Thomas D. Willett

Economics and Politics, 1989, vol. 1, issue 3, 261-275

Abstract: In this paper we ask how to construct a tariff or quota schedule which depends on the behavior of a domestic monopsonistic monopolist in order to achieve the best tradeoff between two objectives of a government. We consider various political and economic tradeoffs which could face the policy maker: aggregate welfare versus industry profits, output and imports; and trade barrier revenue versus industry profits and domestic price. In all cases considered, performance contingent protection which takes the form either of a tariff which depends on domestic output or a quota which depends on the price charged is generally superior to a fixed tariff or quota and is sufficient to achieve optimality.

Date: 1989
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https://doi.org/10.1111/j.1468-0343.1989.tb00017.x

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