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American Economic Review Vol. 98 No. 5 2008

Optimal Tariffs and Market Power: The Evidence

Christian Broda1; Nuno Limão2; David E. Weinstein3

1 Graduate School of Business, University of Chicago, 5807 S. Woodlawn Avenue, Chicago, IL 60637. · 2 Department of Economics, University of Maryland, 3105 Tydings Hall, College Park, MD 20742. · 3 Economics Department, Columbia University, 420 West 118th St., MC 3308, New York, NY 10027.

Abstract

We find that prior to World Trade Organization membership, countries set import tariffs 9 percentage points higher on inelastically supplied imports relative to those supplied elastically. The magnitude of this effect is similar to the size of average tariffs in these countries, and market power explains more of the tariff variation than a commonly used political economy variable. Moreover, US trade restrictions not covered by the WTO are significantly higher on goods where the United States has more market power. We find strong evidence that these importers have market power and use it in setting noncooperative trade policy.

DOI
10.1257/aer.98.5.2032
Volume
98
Issue
5
Pages
2032-2065
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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