Tariffs with Dynamic Supply Response
- Author(s): Karp, Larry
- et al.
This paper studies the optimal tariff in a dynamic framework. The effects of the supplier's rationality and of the type of strategy available to the importer are discussed. With rational sellers, the optimal tariff is dynamically inconsistent; the consistent tariff is extremely myopic and may be worse than free trade for the importer. The paper concentrates on the case in which the traded good is a reproducible commodity. This is compared to the situation in which the traded good is a nonrenewable resource. The plausibility of the consistent equilibrium, in the absence of binding commitments, is discussed.