Tariff Compensation Without Omniscience*

The piecemeal application of second-best arguments to practical policy-making is highly dangerous. This paper attempts to demonstrate this by taking the recent Australian debate over ‘tariff compensation’ as an example. The attempt to ‘compensate’ for tariff-induced distortions in output prices by means of input subsidies is shown to lead to informational problems so serious that the pursuit of such a policy in practice seems unwise. This point is argued by means of extensive numerical examples. These suggest that the potential welfare gains from tariff compensation, optimally applied, are small relative to the potential costs of well-intentioned but erroneous interventions.     

Foreign-Investment Tax and Tariff Policies in Developing Countries

In this paper we examine the welfare effects of tax on foreign capital and tariff policies for a small open economy with sectoral unemployment. The individually and jointly optimal tax and tariff rates in the absence or presence of international tax credits are derived. A subsidy on foreign capital coupled with a tariff can be jointly optimal when tax credits are absent in the source country. However, the capital subsidy policy may fail to hold when the foreign country follows a tax credit system.     

Trade Policies and Industrialisation*

In this paper, the three-commodity model of Gruen and Corden is used to examine the effects of import restriction policies designed to promote industrial development. It is shown that under circumstances which might reasonably be expected to exist in developing economies such policies will likely appear successful in the short run, but may fail in the long run, if the import-competing sector's expansion is largely achieved by the diversion of resources from an infant manufacturing sector producing exportables. An export subsidy is the more appropriate policy under these circumstances.     

Currency Hedging For Export-Flexible Firms *

This paper examines the production and hedging decisions of a competitive exporting firm under exchange rate uncertainty. The firm possesses export flexibility in that it can distribute its output to either the domestic market or a foreign market, after observing the true realization of the exchange rate. It is shown that the separation theorem does not hold under export flexibility, i.e., the firm's optimal output depends on the firm's preference and on the underlying exchange rate uncertainty. Furthermore, the export- flexible firm underhedges its exchange rate risk exposure in a currency forward market where in the forward exchange rate contains a non-positive risk premium. [D21, F31]     

Dynamic Effects of Tariff Liberalization: an Intertemporal Cge Approach*

The paper presents a multisectoral CGE model with overlapping generations in which intertemporal optimization by households and firms determines savings and investment under perfect foresight. We calibrate the model to Austrian data and simulate a unilateral tariff liberalization scenario. We find that unilateral tariff reductions are expansionary in the long-run but involve considerable diversity in sectoral adjustment. Foreign debt increases in the long-run, causing an improvement in the trade balance. In terms of welfare, some old generations gain at the expense of young and future generations. Budgetary policies are shown to be crucial for several effects.     

Endogenous Lobbying Positions

This paper develops a two-country, two-firm model to study equilibrium lobbying positions in intra-industry trade. A firm chooses either a protectionist position or a free-trade position. The model predicts that taking the free-trade lobbying position is an efficient firm's dominant strategy. If two firms have high costs (or when the demand is very weak), there exist two equilibria: either both firms take the free-trade position or both take the protectionist lobbying position. In other cases, both firms taking the free-trade lobbying position is a unique equilibrium.     

The Political Economy of Strategic Trade Policies*

This paper applies Grossman and Helpman's (1994 ) common agency model to investigate the formation of strategic export subsidy and strategic import tariff under both Cournot competition and Bertrand competition. The results of this paper indicate that even with political pressure, the Grossman–Helpman politically‐determined export policy is identical to the rent‐shifting export policy, which is export subsidy (export tax) in Cournot (Bertrand) competition. The politically‐determined import tariff will be higher than the optimal level. This paper highlights the possibility that lobbying can restore the level of trade intervention to a more efficient one in the absence of the benevolent dictator.     

Explaining International Differences in Genetically Modified Food Labeling Policies*

Many countries have adopted labeling policies for genetically modified (GM) food, and the regulations vary considerably across countries. We evaluate the importance of political‐economic factors implicit in the choice of GM food labeling regulations. Using an analytical model, we show that production and trade‐related interests play a prominent role in labeling decision‐making. This conclusion is validated by an empirical analysis of GM food labeling policy choices. We find that countries producing GM crops are more likely to have less stringent labeling policies. Food and feed exporters to the European Union (EU) and Japan are more likely to have adopted stricter labeling policies. Labeling regulations in Asia and Europe are similar to those of Japan and the EU. Countries with no labeling policies are less developed, with important rural sectors and are more likely to have ratified the Cartagena Protocol on Biosafety.     

Protectionist Lobbying and Strategic Investment

Why are some uncompetitive industry sectors so effective in lobbying for greater protection and support? This paper attempts to explain the lobbying success of these industries in terms of the strategic role of investment in technology as a credible commitment device. By eschewing potentially profitable investment opportunities firms credibly signal to the government that the cost of a tariff reduction will be substantial. This enables the firms to lobby more effectively for policy concessions. Political considerations may therefore provide a significant incentive for firms to reject investment in newer technologies, even when these lower production costs.     

Some Implications of Imperfect Competition For Recent Trade Theory*

This paper argues that in a general-equilibrium context, it is not sensible for oligopolistic (and mono-polistically competitive) firms to maximize profit, because the outcome would be sensitive to the choice of the numeraire. the natural objective of these firms would be to maximize the utility of the shareholders if the shareholders are identical. I show that even if each firm takes the representative individual's marginal utility of income as given, the outcome of the utility maximization objective is Pareto optimal, and in equilibrium, each firm equates price with marginal cost.     

Aids: An Economic Approach to the Choice of Policies*

This paper presents a novel approach to the difficult problem of society choosing the optimal set of policy instruments to control the spread of AIDS. The economic approach emphasizes the determinants of agents' behaviour and the reciprocal nature of the market failure problem. The nature of the social objective function is discussed and an expected-utility-maximizing model of the behaviour of HIV-infectious agents is developed In the light of the agents' responses to government policies, some general principles relating to the ranking of instruments and their targeting of individual groups and of instrument variables are developed     

The Status of Lobbying in Croatia

The positions of lobbying and the lobbyist, well established in developed democratic societies, are far less clear in transitional countries. The aim of this paper is to present the current status of lobbying in Croatia through a discussion of its reputation in the media, citizens’ attitudes and the perceptions of business sector representatives. For that purpose, three groups of research results are presented. (1) In order to characterize the reputation of lobbying in the media, the results of a quantitative content analysis of information published in daily and weekly newspapers, magazines and on Internet portals are given. (2) To understand the attitudes of citizens to lobbying, the views of the young are considered. (3) Finally, to define perceptions of lobbying in the public sector and business, the results of a survey conducted among 50 employees in government institutions and 50 in the enterprise sector are presented and analyzed.     

Renegotiation-Proof Tariff Agreements

The institutional features of the World Trade Organization motivate the use of renegotiation-proofness as an equilibrium concept in repeated tariff-setting games. This paper shows the existence of a renegotiation-proof equilibrium that reduces tariffs below the noncooperative level. It is found that the one-shot Nash equilibrium cannot be used as a punishment to support such treaties. Punishments are either Pareto-efficient or one country barely accepts them. If the punishing country is hurt by the punishment then punishments will be as short as possible. If the agreement tariff levels are not Pareto-efficient then one country barely goes along with the agreement.