The Efficient Tariff: Systematically Balancing Security and Welfare Concerns
The American Economist, Vol 36, No 1, 1992, pp 44-52.
9 Pages Posted: 13 Feb 2017
Date Written: March 1, 1992
Imposing a tariff on imports of petroleum has two major effects that encourage conflicting public-policy responses. One effect is the well-documented welfare loss suffered by the domestic economy as a result of the tariff's distortional effects. The other effect is the potentially positive effect that a tariff can have on national security. When tariffs decrease, more of domestic demand is supplied by foreign suppliers — which increases the expected value of the economic damage caused by potential future embargoes. The author derives the equation for the “marginal disruption risk cost” and equates this to the marginal welfare cost to find an “efficient” tariff.
Keywords: tariff, petroleum, embargo
JEL Classification: F13, f52
Suggested Citation: Suggested Citation