Optimum Tariffs, Retaliation and International Cooperation
The theory of optimum tariffs has developed along two apparently mutually exclusive lines. One line of development has concentrated entirely on the possibility of retaliation and has analysed the nature and significance of the final outcome accordingly, for example Scitovsky (1941–42) and Johnson (1953–54). The other line of development, adhered to by the advocates of free international trade, has concentrated on demonstrating that any nationally optimum tariff would yield an inefficient position from a global viewpoint (since that position would not lie on the contract curve); from a world standpoint, a combination of tariffs and international income subsidies (which would leave the world on the contract curve) would constitute a superior policy, see for example Kindleberger and Lindert (1982), Fleming (1956) and Caves and Jones (1981).
KeywordsInternational Cooperation Indifference Curve Trade Theory Income Transfer Contract Curve
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