Stochastic Trade Policy with Asset Markets: The Role of Tariff Structure

Mahua Barari and Harvey Lapan

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper uses a Stockman-Dellas type two-country, two-good, stochastic general equilibrium model to consider the effects of commercial policy when asset markets are complete. We show that: (i) import and export tariffs do not have symmetric effects because interstate relative prices depend on the entire tariff structure; (ii) when commercial policy is random and exogenously determined, the ex post comparison of utility across states depends upon whether import or export tariffs are used; and (iii) when endowments are random, implying the optimal tariff varies across states, the introduction of asset markets may be welfare-reducing when only import tariffs are used.

Date: 1993-11-01
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Published in Journal of International Economics, November 1993, vol. 35 no. 03/04/09, pp. 317-333

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Journal Article: Stochastic trade policy with asset markets: The role of tariff structure (1993)
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