Tariffs, Quotas and Forward Contracts Under Asymmetric Information

Tigran A. Melkonian and Harvey Lapan
Authors registered in the RePEc Author Service: Tigran Melkonyan ()

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

Abstract: We consider optimal trade policy for a large country with private information. We show that the optimal tariff leads to a signaling equilibrium with higher tariffs and lower welfare than under complete information, whereas the optimal import quota replicates the complete information equilibrium and thus is superior to the tariff. We also show that, with the tariff, the country may be better off being uninformed. Finally, we show that if the importing nation cannot commit to its tariff, the use of futures contracts together with the dynamically consistent tariff leads to the same equilibrium as under complete information with commitment. JEL Classification numbers: F13, D82

Date: 2005-05-01
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Published in Review of International Economics, May 2005, vol. 13 no. 2, pp. 311-29

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Journal Article: Tariffs, Quotas, and Forward Contracts under Asymmetric Information* (2005)
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