The Optimal Tariff, Production Lags, and Time ConsistencyThe American Economic Review
Publication VersionPublished Version
AbstractThe optimal tariff for a large country equals the reciprocal of the foreign export elasticity of supply. However, if production decisions occur before consumption decisions, the ex ante optimal tariff is not time consistent because the ex post elasticity is less than the ex ante elasticity. We show all countries are worse off if the large country cannot precommit to its ex ante optimal tariff, and that all countries can gain if the large country taxes domestic production of importables.
Copyright OwnerAmerican Economic Association
Citation InformationHarvey E. Lapan. "The Optimal Tariff, Production Lags, and Time Consistency" The American Economic Review Vol. 78 Iss. 3 (1988) p. 395 - 401
Available at: http://works.bepress.com/harvey-lapan/49/