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