This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. May 2012
  5. Tariff Revenue and Tariff Caps

Tariff Revenue and Tariff Caps

Download Full Text PDF

Abstract

We characterize the design of an optimal trade agreement when governments are privately informed about the value of tariff revenue. We show that the problem of designing an optimal trade agreement in this setting can be represented as an optimal delegation problem when a money burning instrument is available. In a specification with quadratic payoffs and a uniform distribution, we find that the tariff cap and the probability of binding overhang are higher when the upper bound of the support distribution is higher and when the support distribution has greater width.

Citation

Amador, Manuel, and Kyle Bagwell. 2012. "Tariff Revenue and Tariff Caps." American Economic Review, 102 (3): 459-65. DOI: 10.1257/aer.102.3.459

JEL Classification

  • F13 Trade Policy; International Trade Organizations
  • K33 International Law