Multiple equilibria and protectionism

In a nonnative approach, I analyze trade policies when the industrial sector genentes positive extemalities in production, and there are adjustments costs to changing production from one sector to the other. Protectionist trade policy can make workers intemalize the benetits from moving into the industrial sector, but it is a second best policy as it also causes consumption distortions. I show that if the govemment is able to fully commit to its tariff schedule for the future, the welfare maximizing policy is to maintain a positive tariff forever, even after all adjustment has already taken place . However, if the govemment is not able to commit at all, the only time consistent policy is zero tariff at any point in time. The time inconsistency of the full commitment policy is derived from the fact that in the model only production needs interference, and the production distortion is lagged one period with respect to the tariff wbile the consumption distortion is simultaneous to the tariff. In the intermediary case, i.e., when the government can commit for a limited period of time, the time consistent optimal tariff will be positive but lower than the "full commitment" tariff. This result indicates that some institutions that have always been considered pure sources of inefficiency, such as protectionist lobbying, may in fact be welfare improving in some cases!

Energy subsidies and WTO dispute settlement: why only renewable energy subsidies are challenged?

Over the past few years, renewable energy subsidies have become one of the main sources of trade disputes in the WTO. A total of six cases have been initiated against renewable energy subsidy programs since the first of such disputes was brought by Japan against Canada’s Feed in Tariff (FIT) program in 2010. Yet not even a single case has so far been initiated against the much larger and environmentally harmful fossil fuel subsidies. The main objective of this paper is to examine what makes renewable energy subsidies vulnerable to WTO dispute, as compared fossil fuel subsidies.

Nonlinear pricing beyond the demand profile approach

Wilson [16] introduced a general methodology to deal with monopolistic pricing in situations where customers have private information on their tastes (‘types’). It is based on the demand profile of customers: For each nonlinear tariff by the monopolist the demand at a given level of product (or quality) is the measure of customers’ types whose marginal utility is at least the marginal tariff (‘price’). When the customers’ marginal utility has a natural ordering (i.e., the Spence and Mirrlees Condition), such demand profile is very easy to perform. In this paper we will present a particular model with one-dimensional type where the Spence and Mirrlees condition (SMC) fails and the demand profile approach results in a suboptimal solution for the monopolist. Moreover, we will suggest a generalization of the demand profile procedure that improves the monopolist’s profit when the SMC does not hold.