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The Effective Protection Rate Under Uncertainty: A Note *
Author(s) -
ELDOR RAFAEL
Publication year - 1986
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1986.tb00912.x
Subject(s) - economics , equity (law) , measure (data warehouse) , welfare , commodity , stock (firearms) , microeconomics , tariff , econometrics , financial economics , finance , international economics , computer science , mechanical engineering , database , political science , law , market economy , engineering
This note presents a measure of the effective protection rate in a general equilibrium model under uncertainty where a stock market exists and international trade in securities takes place. Real equity prices replace the final commodity prices since, in the presence of uncertainty, resource allocation and therefore the output of each industry is governed by real equity prices. Using expected utility as a welfare criterion, it is shown that second‐best optimum can be achieved by a tariff on the intermediate good at a rate given by setting the new measure to zero. This note provides the theoretical foundations to the measure estimated by Eldor (1984).