@techreport{NBERw0797,
 title = "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete",
 author = "Jonathan Eaton and Gene M. Grossman",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "797",
 year = "1985",
 month = "August",
 URL = "http://www.nber.org/papers/w0797",
 abstract = {Free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile - ex post, and markets for contingent claims are incomplete. The government can improve social welfare by using commercial policy that serves as a partial substitute for missing insurance markets. Using a combination of analytical and simulation techniques we demonstrate that optimal policy for this purpose will often have an anti-trade bias. We also show that the usual preference by economists for factor or product taxes and subsidies over tariffs and export subsidies may not be justified in this context.},
}