Optimal Trade Policies: An Application to the UK Fertilizer Market

Steve McCorriston and Ian Sheldon

Oxford Economic Papers, 1993, vol. 45, issue 1, 118-29

Abstract: This paper evaluates the trade policies introduced into the U.K. fertilizer market by the U.K. government and EC Commission in 1987. These policies are assessed in the context of theoretical developments in the analysis of trade policy where markets are imperfectly competitive. Specifically, optimal tariff and tariff-equivalent quota policies are derived. It is found that an optimal tariff policy would have resulted in the highest level of economic welfare, while a quota would have reduced welfare, the latter result being due to the effect of a quota on firms' behavior. Relative to these policies, the trade restrictions actually imposed were too restrictive and hence failed to maximize economic welfare. Copyright 1993 by Royal Economic Society.

Date: 1993
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