Tariffs, Quotas, and Forward Contracts Under Asymmetric Information

19 Pages Posted: 29 Apr 2005

See all articles by Tigran A. Melkonyan

Tigran A. Melkonyan

University of Maryland - Department of Agricultural & Resource Economics

Harvey E. Lapan

Iowa State University - Department of Economics

Abstract

We consider optimal trade policy for a large country with private information. We show that the optimal tariff leads to a signaling equilibrium with higher tariffs and lower welfare than under complete information, whereas the optimal import quota replicates the complete information equilibrium and thus is superior to the tariff. We also show that, with the tariff, the country may be better off being uninformed. Finally, we show that if the importing nation cannot commit to its tariff, the use of futures contracts together with the dynamically consistent tariff leads to the same equilibrium as under complete information with commitment.

Suggested Citation

Melkonyan, Tigran and Lapan, Harvey E., Tariffs, Quotas, and Forward Contracts Under Asymmetric Information. Available at SSRN: https://ssrn.com/abstract=712203

Tigran Melkonyan (Contact Author)

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States

Harvey E. Lapan

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States
515 294-5917 (Phone)

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