If the representative consumer of a country is risk averse then the choice of trade controls must take account of their effects on the fluctuations of domestic real income. If the world price of the importable is uncertain and risk aversion is high then the optimal policy for achieving a ceiling on expected imports involves a reduction in imports and a rise in the domestic price as the world price falls. Moreover, a quota is superior to a tariff in achieving the ceiling. Under domestic uncertainty, a tariff is superior to a quota but it could be optimal to reduce the domestic price as imports increase.

This paper introduces a new index number, the Trade Restrictiveness Index, which measures the restrictiveness of a system of trade protection. The index is a general equilibrium application of the distance function and answers the question: “What uniform set of trade restrictions is equivalent (in welfare terms) to the initial protective structure?” The index is applicable to both tariffs and quotas and permits international and intertemporal comparisons. The index is operational and we provide two empirical examples to illustrate its applicability and to show its superiority to commonly used measures.

Quotas are the predominant means of protection in developed countries, with quota rents commonly shared between exporter and importer. This paper derives shadow prices appropriate to evaluating trade reform under these circumstances and provides a number of useful sufficient conditions for welfare-improving "piecemeal" reform. In doing so, the authors apply the distorted (quantity-constrained) expenditure function and use implicit separability to derive more powerful results than have previously been available.

The incidence of bilateral trade costs is calculated here using neglected properties of the structural gravity model, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992–2003, sellers' incidence is on average some five times higher than buyers' incidence. Sellers' incidence falls over time due to specialization, despite constant gravity coefficients. This previously unrecognized globalizing force drives big reductions in “constructed home bias,” the disproportionate predicted share of local trade; and large but varying gains in real GDP.