NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tariffs in an Economy with Incomplete Markets and Unemployment

Raquel Fernandez

NBER Working Paper No. 2705
Issued in September 1988
NBER Program(s):   ITI   IFM

This paper examines the optimal labor contract in a small open economy with incomplete markets under international price uncertainty. The effect on employment, wages, and profits of different realizations of the state of nature is studied and agents' preferences concerning the implementation of a tariff are determined. The implicit contract equilibrium is shown to be constrained Pareto optimal; unanticipated tariff policy cannot be Pareto improving over free trade.

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Document Object Identifier (DOI): 10.3386/w2705

Published: "Terms of Trade Uncertainty, Incomplete markets, and Unemployment," International Economic Review, 33, pp. 881-894, Noveber, 1992

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