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Tariff Revenue and Tariff Caps

Author

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  • Manuel Amador
  • Kyle Bagwell

Abstract

We characterize the design of an optimal trade agreement when governments are privately informed about the value of tariff revenue. We show that the problem of designing an optimal trade agreement in this setting can be represented as an optimal delegation problem when a money burning instrument is available. In a specification with quadratic payoffs and a uniform distribution, we find that the tariff cap and the probability of binding overhang are higher when the upper bound of the support distribution is higher and when the support distribution has greater width.

Suggested Citation

  • Manuel Amador & Kyle Bagwell, 2012. "Tariff Revenue and Tariff Caps," American Economic Review, American Economic Association, vol. 102(3), pages 459-465, May.
    • Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:459-65
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.459
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    References listed on IDEAS

    as
    1. Kyle Bagwell, 2009. "Self-Enforcing Trade Agreements and Private Information," NBER Working Papers 14812, National Bureau of Economic Research, Inc.
    2. Manuel Amador & Iván Werning & George-Marios Angeletos, 2006. "Commitment vs. Flexibility," Econometrica, Econometric Society, vol. 74(2), pages 365-396, March.
    3. Corden, W. Max., 1997. "Trade Policy and Economic Welfare," OUP Catalogue, Oxford University Press, edition 2, number 9780198775348.
    4. Matschke, Xenia, 2008. "Costly revenue-raising and the case for favoring import-competing industries," Journal of International Economics, Elsevier, vol. 74(1), pages 143-157, January.
    5. Beshkar, Mostafa & Bond, Eric W. & Rho, Youngwoo, 2015. "Tariff binding and overhang: Theory and evidence," Journal of International Economics, Elsevier, vol. 97(1), pages 1-13.
    6. Kyle Bagwell & Robert W. Staiger, 2005. "Enforcement, Private Political Pressure, and the General Agreement on Tariffs and Trade/World Trade Organization Escape Clause," The Journal of Legal Studies, University of Chicago Press, vol. 34(2), pages 471-513, June.
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    Cited by:

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    2. Josef Schroth, 2016. "Supervising Financial Regulators," Staff Working Papers 16-52, Bank of Canada.
    3. Alain McLaren, 2016. "Policy Space In Agricultural Markets," UNCTAD Blue Series Papers 73, United Nations Conference on Trade and Development.
    4. Noam Tanner, 2018. "Optimal Delegation Under Unknown Bias: The Role of Concavity," Supervisory Research and Analysis Working Papers RPA 18-1, Federal Reserve Bank of Boston.
    5. Alessandro Nicita & Marcelo Olarreaga & Peri Silva, 2014. "Cooperation In The Tariff Waters Of The World Trade Organization," UNCTAD Blue Series Papers 62, United Nations Conference on Trade and Development.
    6. Junlong Chen & Xinran Xie & Chaoqun Sun & Li Lin & Jiali Liu, 2022. "Optimal trade policy and welfare in a differentiated duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 3019-3043, October.
    7. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 317-390, Elsevier.
    8. Josef Schroth, 2015. "Risk Sharing in the Presence of a Public Good," Staff Working Papers 15-27, Bank of Canada.

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