Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete

Jonathan Eaton and Gene Grossman

No 797, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile - ex post, and markets for contingent claims are incomplete. The government can improve social welfare by using commercial policy that serves as a partial substitute for missing insurance markets. Using a combination of analytical and simulation techniques we demonstrate that optimal policy for this purpose will often have an anti-trade bias. We also show that the usual preference by economists for factor or product taxes and subsidies over tariffs and export subsidies may not be justified in this context.

Date: 1981-11
Note: ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Published as Eaton, Jonathan and Gene M. Grossman. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets are Incomplete." Canadian Journal of Economics, Vol. 18, No. 2, (May 1985), pp. 258-272.

Downloads: (external link)
http://www.nber.org/papers/w0797.pdf (application/pdf)

Related works:
Journal Article: Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete (1985)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:0797

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w0797

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().