On Optimum Tariff Structures

Abstract

This is an essay in welfare statics—in the strictest sense of the term. It seeks to apply to a classic problem in tariff theory a tool of considerable power and generality forged by Professor Paul A. Samuelson in his Foundations of Economic Analysis.¹ The tool to which I refer is a community’s “possibility locus.” Some of its salient properties are indicated in the first of the sections that follow. In the second I introduce a closely related concept, the community’s “efficiency locus.” The third is concerned with their application to the problem of determining optimum tariff structures, and discusses the argument—due essentially to Bickerdike² and Edgeworth,³ writing at the turn of the century, but recently revived by a distinguished band of contemporary economists: Professor Lerner,⁴ Mr. Kaldor,⁵ Professor de Scitovszky,⁶ Mrs. Robinson,⁷ and Mr. Kahn⁸—that it is, in the absence of retaliation, always possible for a full-employment country to turn the terms of trade in its favour by imposing a “small” protective tariff on imports, and to benefit itself thereby. In the fourth section I examine rather critically Mr. Kahn’s revival of Bickerdike’s theory that the “small” tariff may, in fact, be quite a “large” one. A mathematical note concludes the paper. The treatment throughout differs essentially from that of Mr. Little’s article on “Welfare and Tariffs”⁹ in that the existence of no criterion is assumed on the basis of which interpersonal comparisons of well-being can be made.