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TARIFFS, PRICE CONJECTURES AND WELFARE IN AN OPEN SPATIAL ECONOMY
Author(s) -
Heffley Dennis,
Hatzipanayotou Panos,
Mourdoukoutas Pavlos
Publication year - 1993
Publication title -
papers in regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.937
H-Index - 64
eISSN - 1435-5957
pISSN - 1056-8190
DOI - 10.1111/j.1435-5597.1993.tb01864.x
Subject(s) - tariff , economics , small open economy , open economy , welfare , microeconomics , international economics , monetary economics , market economy , exchange rate
This paper examines the implications of a tariff increase in a spatial model of an open economy with price conjectures between domestic and foreign producers of non‐identical goods. Households are mobile and location and rent adjustments are influenced by pricing policies. It is shown that, although the equilibrium configuration of the economy is sensitive to the prevailing combination of conjectural variations, the effects of a tariff increase are qualitatively consistent across alternative, and perhaps asymmetric, price conjectures. The tariff reduces the endogenous mill price of the import, increases its post‐tariff delivered price throughout the economy, and induces a decrease in both the mill and delivered price of the domestic good. Location and rent adjustments cause the common equilibrium level of household utility to decline with an increase in the tariff, regardless of the particular mix of conjectural variations. Domestic consumer utility can Only be restored to its initial (world norm) level by out‐migration.