Reciprocity, World Prices and Welfare

26 Pages Posted: 17 Oct 2011

See all articles by Pascalis Raimondos

Pascalis Raimondos

Queensland University of Technology - School of Economics and Finance; Copenhagen Business School - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Alan D. Woodland

University of New South Wales

Date Written: October 17, 2011

Abstract

We examine in detail the circumstances under which reciprocity, as defined in Bagwell and Staiger (1999), leads to fixed world prices. We show that a change of tariffs satisfying reciprocity does not necessarily imply constant world prices in a world of many goods and countries. While it is possible to find tariff reforms that are consistent with both reciprocity and constant world prices, these reforms do not follow from the reciprocity condition, but rather from the requirement of unchanged world prices. We propose an alternative reciprocity rule that is guaranteed to raise the welfare of all countries, independently of whether world prices change and independently of the relative numbers of goods and countries.

Keywords: GATT, reciprocity, fixed world prices

JEL Classification: F020, F130, F150

Suggested Citation

Raimondos, Pascalis and Woodland, Alan D., Reciprocity, World Prices and Welfare (October 17, 2011). CESifo Working Paper Series No. 3607, Available at SSRN: https://ssrn.com/abstract=1945079

Pascalis Raimondos (Contact Author)

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Copenhagen Business School - Department of Economics ( email )

Solbjergs Plads 3
DK-2000 Frederiksberg C
Denmark
+45 38 152 594 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Alan D. Woodland

University of New South Wales ( email )

School of Economics
Sydney, NSW 2052
Australia
61293859707 (Phone)
61293136337 (Fax)

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