On the limits of free trade in a Cournot world: when are restrictions on trade beneficial?

Rabah Amir*, Jim Y. Jin, Michael Troege

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper examines marginal deviations from free trade in an asymmetric Cournot world. We provide necessary and sufficient conditions under which small import tariffs, export subsidies, production subsidies and consumption taxes increase country-level as well as world social welfare (SW) and consumer surplus (CS). We find that free trade is generally not optimal. Some countries’ tariffs or subsidies can always improve world welfare. Every country’s export subsidy raises the sum of world SW and CS. Finally, we rank the different policies and show that production subsidies are most likely to raise world SW, followed by export subsidies and then import tariffs, whereas consumption taxes never do.
    Original languageEnglish
    Pages (from-to)2036-2057
    Number of pages22
    JournalCanadian Journal of Economics
    Volume55
    Issue number4
    Early online date20 Oct 2022
    DOIs
    Publication statusPublished - 15 Nov 2022

    Keywords

    • Free trade
    • Welfare
    • Import tariffs
    • Export subsidies
    • Production subsidies
    • Consumption tax

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