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Tariffs, Quotas, and Forward Contracts under Asymmetric Information

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  • Tigran Melkonyan
  • Harvey Lapan

Abstract

We consider optimal trade policy for a large country with private information. We show that the optimal tariff leads to a signaling equilibrium with higher tariffs and lower welfare than under complete information, whereas the optimal import quota replicates the complete information equilibrium and thus is superior to the tariff. We also show that, with the tariff, the country may be better off being uninformed. Finally, we show that if the importing nation cannot commit to its tariff, the use of futures contracts together with the dynamically consistent tariff leads to the same equilibrium as under complete information with commitment.

Suggested Citation

  • Tigran Melkonyan & Harvey Lapan, 2005. "Tariffs, Quotas, and Forward Contracts under Asymmetric Information," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 311-329, May.
    • Handle: RePEc:bla:reviec:v:13:y:2005:i:2:p:311-329
    DOI: 10.1111/j.1467-9396.2005.00506.x
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    References listed on IDEAS

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    1. Lapan, Harvey E, 1988. "The Optimal Tariff, Production Lags, and Time Consistency," American Economic Review, American Economic Association, vol. 78(3), pages 395-401, June.
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    Cited by:

    1. Keisuke Hattori & Keisaku Higashida, 2011. "When Government Misleads US: Sending Misinformation as Protectionist Devices," Discussion Paper Series 75, School of Economics, Kwansei Gakuin University, revised Aug 2011.

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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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