Uncertainty and the Choice of Protective Instrument

Rodney Falvey and P J Lloyd

Oxford Economic Papers, 1991, vol. 43, issue 3, 463-78

Abstract: This paper examines the problem of how governments choose among trade-policy instruments under uncertainty. Policymakers are assumed to select the level and form of protection so as to maximize a political support function whose arguments are the utilities of individual producers, consumers, and rent recipients. The characteristics of the optimal protective instrument are then derived for different sources of uncertainty. The model is also used to make second-best rankings between tariff and quota instruments that depend upon the source of uncertainty and other parameters. Copyright 1991 by Royal Economic Society.

Date: 1991
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