Welfare–maximizing and revenue–maximizing tariffs with a few domestic firms

In this paper we compare the orthodox optimal tariff formula with the appropriate welfare–maximizing tariff when there are a few producing or importing firms. The welfare–maximizing tariff can be very low, voire negative in some cases, while in others it can even exceed the maximum–revenue tariff. The relationship between the welfare–maximizing tariff and the number of firms need not be monotonically increasing, because the tariff is not strictly used to internalize terms of trade externality. It is also used to manipulate cost asymmetries between producing and importing firms. Welfare–maximizing specific tariffs are never worse than their ad valorem counterparts. JEL Classification F13, L13
Tarif qui maximise le bien être et tarif qui maximise le revenu quand on est en présence de peu de firmes. Nous comparons le tarif optimal orthodoxe au tarif maximisant le bien être lorsqu'il y a peu de firmes productrices ou importatrices. Le tarif qui maximise le bien être est parfois très bas, même négatif, mais il peut excéder le tarif qui maximise le revenu dans d'autres cas. La relation entre le tarif et le nombre de firmes n'est pas nécessairement monotone parce que le tarif n'est pas strictement utilisé pour améliorer les termes d'échange. Il est aussi utilisé pour manipuler les asymétries dans les coûts des firmes productrices et importatrices. Le tarif spécifique n'est jamais dominé par le tarif ad valorem.     

Uncertainty and the specificity of human capital

This paper studies the choice between general and specific human capital. A trade-off arises because general human capital, while less productive, can easily be reallocated across firms. Accordingly, the fraction of individuals with specific human capital depends on the amount of uncertainty in the economy. Our model implies that while economies with more specific human capital tend to be more productive, they also tend to be more vulnerable to turbulence. As such, our theory sheds some light on the experience of Japan, where human capital is notoriously specific: while Japan benefited from this predominately specific labor force in tranquil times, this specificity may also have been at the heart of its prolonged stagnation.     

The Positive Effects of Biased Self-Perceptions in Firms

We study a firm in which the marginal productivity of agents'effort increases with the effort of others. We show that thepresence of an agent who overestimates his marginal productivitymay make all agents better off, including the biased agent himself.This Pareto improvement is obtained even when compensation contractsare set endogenously to maximize firm value. We show that thepresence of a leader improves coordination, but self-perceptionbiases can never be Pareto-improving when they affect the leader.Self-perception biases are also shown to affect job assignmentswithin firms and the likelihood and value of mergers.     

Price equivalent tariffs and quotas under a domestic monopoly

Price-equivalent import tariffs and quotas are compared when domestic production is controlled by a monopolist, say an agricultural marketing board with the power to restrict domestic supply, under endogenous terms of trade. Welfare comparisons boil down to sourcing costs comparisons. Quotas tend to dominate at high domestic prices, ad valorem tariffs at intermediate prices and specific tariffs at low domestic prices. Welfare maxima are achieved with more restrictive policies than under perfect competition. These results rationalize separate negotiations for sensitive products in the Doha Round and the setting of tariff-rate quotas that mimic import quotas for these products. Finally, in ascertaining the robustness of our policy ranking to the choice of variable anchoring the comparisons, we found that specific tariffs unambiguously dominate ad valorem tariffs and quotas when government revenue or imports anchor the comparisons. However, some quota revenues and import levels cannot be achieved with tariffs.     

Export Restrictions and Smooth Transition Cointegration: Export Quotas for Wheat in Ukraine

We extend previous modelling approaches to identify domestic price effects of export controls. We allow for smooth transition between free‐trade price transmission regimes and those under export restricting regimes, using a smooth transition cointegration (STC) approach, rather than the more common assumption that regime changes are abrupt. Our approach has the advantage that the switch in the price transmission regime may be induced not only by an actual but also by an expected policy change. Results confirm the gradual nature of the transition between the regimes, which reflect trader heterogeneity and wheat storage decisions. We find that the STC approach outperforms alternative model approaches in terms of both regime classification and goodness of fit, when explaining Ukrainian domestic wheat prices under export controls. In particular, application of the Markov‐switching error correction model (MSECM) to the same data generates results which do not reflect any identifiable economic reality (in contrast to Götz et al., 2013 ).     

Exporting to new destinations and the effects of tariffs: the case of meat commodities

This study uses a random parameter probit estimation to examine the effects of tariff liberalization on the probability of establishing new trading relationships in meat commodities. Our simulation results indicate that the effects of tariff reductions decrease with distance, but increase with the level of development. The probabilities of trade increase at an increasing rate with the size of tariff reductions thus justifying calls for ambitious liberalization schemes. Canada and Mexico are the NAFTA countries that are most likely to export in response to EU tariff reductions on bovine and poultry meats, while Brazil and Argentina emerge as the MERCOSUR countries most likely to penetrate the EU bovine meat market after EU tariff reductions. Uruguay's probability to export poultry meat is most responsive to EU tariff reductions.     

Consumption,income, and wealth inequality in Canada

In this paper, we document some features of the distribution of income, consumption and wealth in Canada using survey data from many different sources. We find that wage and income inequality have increased substantially over the last 30 years, but that much of this rise was offset by the tax and transfer system. As a result, the rise in consumption inequality has been relatively mild. We also document that wealth inequality has remained fairly stable since 1999. Using both confidential data and publicly available data, we are able to gauge the extent to which the publicly available data conceals aspects of inequality that confidential data reveals.     

A gravity model to account for vertical linkages between markets with an application to the cattle/beef sector

A gravity model is developed to explain bilateral trade flows in primary and processed commodities within the same agri-food supply chain. It accounts for vertical production linkages, trade and domestic policies, and supply rigidities at the farm level. Our application focuses on cattle/beef trade flows between 42 countries. The estimated parameters of the model are used to simulate trade flows. We found large differences in the impacts of the full and partial liberalization scenarios. A parametric bootstrap procedure is used to generate confidence intervals around predicted trade liberalization outcomes.     

Product quality,firm heterogeneity and trade liberalization

This paper develops a framework for studying the general equilibrium effects of endogenous quality upgrading, a new margin of trade, on the welfare impact of trade liberalization. The theoretical model introduces product quality differentiation amongst heterogeneous firms and focuses on supply-side determinants of international trade. Among other results, in general equilibrium, trade liberalization decreases the share of high-quality varieties in exports and the average productivity of exporters. These changes affect average export price in opposite ways. Nevertheless, trade liberalization in the quality-extended model increases consumers’ welfare by more than in the benchmark model.     

An Economic Investigation of the Import Licensing Methods and TRQs in Agriculture

Tariff-Rate Quotas (TRQs) were introduced at the outset of the Uruguay Round to support market access following the tariffication of non-tariff barriers to trade in agriculture. TRQs created an administrative mess in which governments often discretionarily allocate import licenses to private and/or public firms. Numerous papers describe the arbitrarily chosen procedures used to allocate licenses in different countries and the resulting distorted trade patterns. However, few research efforts have formally studied the impacts of different administrative methods on welfare. Due to significant spreads between domestic and world prices, the administration of import licenses can have important strategic effects under imperfect competition. We propose a simple theoretical framework to highlight the various economic implications of two methods used by WTO members: the historical allocation and the first-come-first-serve procedures. These two methods differ in their discretionary degree and, under imperfect competition, lead to different welfare implications depending on the structural parameters of an industry. Numerical simulations are provided to illustrate our findings