Risk Aversion, Terms of Trade Uncertainty and Social-Consensus Trade Policy

James Cassing, Arye Hillman () and Ngo Long

Oxford Economic Papers, 1986, vol. 38, issue 2, 234-42

Abstract: In the Ricardo-Viner model under certainty, some specific factors areharmed by any trade tax, and mo bile factors favor taxes on some-but not all-goods. This paper demonstrates in t he context of the Ricardo-Viner trade model with terms-of-trade uncertainty, that in the presence of incomplete insurance markets a terms-of-trade contingent tr ade tax commitment can improve welfare (without any explicit income redistributi on) for every factor owner. Furthermore,this result holds in both the short run , with factor specificity, and the long run before any investment decision in sp ecificity or mobility has been implemented. Copyright 1986 by Royal Economic Society.

Date: 1986
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