Potential Pareto‐Improving Move Toward Most Favored Nation Tariffs

19 Pages Posted: 26 Feb 2016

See all articles by Sajal Lahiri

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics

Peri Silva

Kansas State University - Department of Economics

Date Written: April 2016

Abstract

We use a multicountry asymmetric oligopolistic framework for segmented markets to study the welfare effects of reducing tariff discriminations - which we call a move toward Most Favored Nation tariffs. In our basic framework initial tariffs are arbitrary, and we consider unilateral reforms without and with reciprocity/retaliation. We extend the basic framework to allow for revenue constraints, unemployment, and the case where the initial tariffs are at Nash‐optimal levels. We also consider multilateral reforms in the last scenario. Conditions under which such harmonizations are potentially Pareto‐improving are derived and results compared across scenarios. Each scenario makes a significant difference to qualitative results.

JEL Classification: F10, F11, F13, H21, H3, H41

Suggested Citation

Lahiri, Sajal and Silva, Peri, Potential Pareto‐Improving Move Toward Most Favored Nation Tariffs (April 2016). Economic Inquiry, Vol. 54, Issue 2, pp. 1086-1104, 2016. Available at SSRN: https://ssrn.com/abstract=2738271 or http://dx.doi.org/10.1111/ecin.12282

Sajal Lahiri (Contact Author)

Southern Illinois University Carbondale - Department of Economics ( email )

MC 415
1000 Faner Drive
Carbondale, IL 62901
United States

Peri Silva

Kansas State University - Department of Economics ( email )

Manhattan, KS 66502-4001
United States

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