Incentive Compatible Trade Policies

Robert C. Feenstra

NBER Working Paper No. 1977
Issued in July 1986
NBER Program(s):   ITI   IFM

We consider a two country trade model with production uncertainty. If

complete contingent markets do not exist, it is desirable for governments to

adopt some trade policies to share the production risk. A full information

policy involves income transfers across countries, which can be achieved by

equal import tariffs and export subsidies. With incomplete information we

consider incentive compatible trade policies, which are designed to be truth

revealing while partially sharing the production risk. In this case the

tariff in one country may differ from the export subsidy abroad.

(167 K)

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Published: Feenstra, Robert C. "Incentive Compatible Trade Policies," Scandinavian Journal of Economics, 1987.

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