TY  - JOUR
AU  - Krishna,Kala
AU  - Hogan,Kathleen
AU  - Swagel,Phillip
TI  - The Non-Optimality of Optimal Trade Policy: The U.S. Automobile Indust  ry Revisited, 1979-1985
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3118
PY  - 1989
Y2  - September 1989
UR  - http://www.nber.org/papers/w3118
L1  - http://www.nber.org/papers/w3118.pdf
N1  - Author contact info:
Kala Krishna
Department of Economics
523 Kern Graduate Building
The Pennsylvania State University
University Park, PA 16802
Tel: 814/865-1106
Fax: 814/863-4775
E-Mail: kmk4@psu.edu

Kathleen Hogan

Phillip Swagel
E-Mail: pswagel@umd.edu
AB  - We examine the sensitivity of simple calibration models of trade in imperfectly competitive industries to changes in model specification, as well as to changes in the calibration parameters. We find that not just the magnitude, but also the sign of the optimal trade policies is very sensitive to the change in model specification. Indeed, use of policies derived from the 'wrong' model can reduce welfare from the status quo. However, the welfare gains to be obtained from application of the 'correct' model remain limited. Calibration models nonetheless provide useful estimates of firm and market behavior over time, as well as disaggregated elasticities of demand. We conclude that careful empirical work is necessary to guide model selection. For the present, the case for activist trade policy on the basis of calibration models should not be made.
ER  -