Incentive Compatible Trade Policies

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.

Number of Pages in PDF File: 24

working papers series