Incentive Compatible Trade Policies

24 Pages Posted: 26 May 2004 Last revised: 29 May 2022

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 1986

Abstract

We consider a two country trade model with production uncertainty. Ifcomplete contingent markets do not exist, it is desirable for governments toadopt some trade policies to share the production risk. A full informationpolicy involves income transfers across countries, which can be achieved byequal import tariffs and export subsidies. With incomplete information weconsider incentive compatible trade policies, which are designed to be truthrevealing while partially sharing the production risk. In this case thetariff in one country may differ from the export subsidy abroad.

Suggested Citation

Feenstra, Robert C., Incentive Compatible Trade Policies (July 1986). NBER Working Paper No. w1977, Available at SSRN: https://ssrn.com/abstract=344785

Robert C. Feenstra (Contact Author)

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