Second‐best Rates of Effective Protection with Imperfect Substitution

Journal of Economic Studies

ISSN: 0144-3585

Publication date: 1 January 1992

Abstract

Demonstrates the implications of imperfect substitutability between domestic and imported final goods for the determination of second‐best nominal and effective tariffs in a general equilibrium setting. The analysis of second‐best interventions for given policy distortions extends that by Ruffin and Casas on homogeneous goods to the case where there is product heterogeneity. The second‐best optimal effective rate of protection for given policy distortions is shown to depend upon the nature of the policy distortion and the degree of substitutability between imported and domestic varieties. Although imperfect substitution reduces the extent to which effective protection can be determined from the structure of protection, it increases the extent to which second best tariffs can be determined in a qualitative sense at least when compared with the traditional, perfect substitution case.

Keywords

Citation

Milner, C. (1992), "Second‐best Rates of Effective Protection with Imperfect Substitution", Journal of Economic Studies, Vol. 19 No. 1. https://doi.org/10.1108/01443589210015917

Publisher

:

MCB UP Ltd

Copyright © 1992, MCB UP Limited

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