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WTO Exceptions as Insurance
Author(s) -
Fischer Ronald D.,
Prusa Thomas J.
Publication year - 2003
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1046/j.1467-9396.2003.00415.x
Subject(s) - subsidy , economics , order (exchange) , welfare , microeconomics , market economy , finance
The paper formalizes the notion that GATT exceptions such as antidumping and escape clause actions can act as insurance for import competing sectors affected by adverse price shocks. The authors use a general‐equilibrium model with several import competing sectors and assume incomplete markets so that agents cannot contract insurance. It is shown that sector‐specific contingent protection measures are superior to uniform contingent tariffs as an insurance mechanism. A tax‐cum‐subsidy policy (i.e., taxing all sectors in order to subsidize the shocked sector) also improves welfare and is superior to contingent protection.