UNCERTAINTY, PRICE STABILIZATION AND WELFARE

Eun Choi and Stanley R. Johnson

No 51265, Working Papers from International Agricultural Trade Research Consortium

Abstract: This paper investigates whether a small country facing foreign price instability benefits from active stabilization of the domestic price of the importable. If the random tariff revenue is rebated ex post, domestic price stabilization increases income instability, and nonintervention is optimal. If an ex ante rebating scheme is employed, a small country can benefit from domestic price stabilization, and there exists a partial stabilization policy that dominates free trade. Partial stabilization of the domestic price with the ex ante rebate requires a variable import levy inversely related to the foreign price.

Keywords: Demand and Price Analysis; International Relations/Trade (search for similar items in EconPapers)
Pages: 22
Date: 1990
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Related works:
Working Paper: Uncertainty, Price Stabilization, and Welfare (1992)
Working Paper: Uncertainty, Price Stabilization and Welfare (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iatrwp:51265

DOI: 10.22004/ag.econ.51265

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