Trade Policy and Imperfect Competition

Abstract

In the preceding chapter we took the conventional neoclassical view that market failures reduce economic efficiency and welfare, and considered the use of tariffs as a means of correcting for these distortions. Our general conclusion was that tariffs might still reduce welfare still further, and that even in the cases where tariffs can increase welfare, they are necessarily inferior to other forms of policy intervention. Except in the particular case of the optimal tariff imposed by a large country, the arguments of the last chapter provide no economic justification for the use of tariffs or other trade-distorting measures.