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- Title
The Optimal Policies for Restricting Trade under Uncertainty.
- Authors
Young, Leslie; Anderson, James E.
- Abstract
A basic theme of microeconomics is the equivalence of price and quantity controls under certainty. The welfare comparison of these two control modes under uncertainty has been undertaken recently in two different contexts. It is natural to compare the welfare effects of quotas, and valorem tariffs and specific tariffs under uncertainty because there are the most widely used and easily administered instruments for restricting trade. However, none of the above authors have considered what policy would be optimal for the objective that they consider. This article shows that the answer to this question can be surprisingly simple and general. Under broad conditions we have shown that the optimal policy subject to a ceiling on expected imports is a specific tariff and the optimal policy subject to a ceiling on expected foreign exchange expenditure is an ad valorem tariff. The widely-held presumption that, under uncertainty, tariffs are preferable to quotas as instruments for restricting trade is vindicated-and sharpened since we now see that different constraints require different forms of tariff.
- Subjects
COMMERCE; INTERNATIONAL trade; ECONOMIC policy; SUPPLY &; demand; COMMERCIAL policy; MICROECONOMICS; CUSTOMS unions; INDIRECT taxation; ECONOMICS
- Publication
Review of Economic Studies, 1980, Vol 47, Issue 5, p927
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2296922