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The Effective Protection Rate Under Uncertainty: A Note

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  • RAFAEL ELDOR

Abstract

This note presents a measure of the effective protection rate in a general equilibrium model under uncertainty where a stock market exists and international trade in securities takes place. Real equity prices replace the final commodity prices since, in the presence of uncertainty, resource allocation and therefore the output of each industry is governed by real equity prices. Using expected utility as a welfare criterion, it is shown that second‐best optimum can be achieved by a tariff on the intermediate good at a rate given by setting the new measure to zero. This note provides the theoretical foundations to the measure estimated by Eldor (1984).

Suggested Citation

  • Rafael Eldor, 1986. "The Effective Protection Rate Under Uncertainty: A Note," The Economic Record, The Economic Society of Australia, vol. 62(4), pages 485-489, December.
    • Handle: RePEc:bla:ecorec:v:62:y:1986:i:4:p:485-489
    DOI: 10.1111/j.1475-4932.1986.tb00912.x
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    References listed on IDEAS

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    1. Bela Balassa, 1965. "Tariff Protection in Industrial Countries: An Evaluation," Journal of Political Economy, University of Chicago Press, vol. 73(6), pages 573-573.
    2. Ruffin, Roy J, 1969. "Tariffs, Intermediate Goods, and Domestic Protection," American Economic Review, American Economic Association, vol. 59(3), pages 261-269, June.
    3. Balassa, Bela, 1970. "Tariffs, Intermediate Goods and Domestic Protection: Comment," American Economic Review, American Economic Association, vol. 60(5), pages 959-963, December.
    4. Helpman, Elhanan & Razin, Assaf, 1979. "A Theory of International Trade Under Uncertainty," Elsevier Monographs, Elsevier, edition 1, number 9780123396501 edited by Shell, Karl.
    5. Helpman, Elhanan & Razin, Assaf, 1980. "Efficient Protection under Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 716-731, September.
    6. Balassa, Bela, 1970. "Tariffs, Intermediate Goods and Domestic Protection: Further Comment," American Economic Review, American Economic Association, vol. 60(5), pages 968-969, December.
    7. Corden, W. M., 1971. "The substitution problem in the theory of effective protection," Journal of International Economics, Elsevier, vol. 1(1), pages 37-57, February.
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