Tariffs in an Economy with Incomplete Markets and Unemployment

Raquel Fernandez

No 2705, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the optimal labor contract in a small open economy with incomplete markets under international price uncertainty. The effect on employment, wages, and profits of different realizations of the state of nature is studied and agents' preferences concerning the implementation of a tariff are determined. The implicit contract equilibrium is shown to be constrained Pareto optimal; unanticipated tariff policy cannot be Pareto improving over free trade.

Date: 1988-09
Note: ITI IFM
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Published as "Terms of Trade Uncertainty, Incomplete markets, and Unemployment," International Economic Review, 33, pp. 881-894, Noveber, 1992

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