Chapter

The Theory of Domestic Divergences

W. Max Corden

in Trade Policy and Economic Welfare

Second edition

Published in print February 1997 | ISBN: 9780198775348
Published online November 2003 | e-ISBN: 9780191715471 | DOI: http://dx.doi.org/10.1093/0198775342.003.0002
 The Theory of Domestic Divergences

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The basic theory of domestic divergences (distortions) and trade policy is laid out. Production and consumption divergences are distinguished. The concepts of the by‐product distortion effect of a tariff, the second‐best optimum tariff, home‐market bias, and the hierarchy of policies are introduced. The theory is explained both with partial equilibrium diagrams and with two‐product geometry.

Keywords: consumption; domestic distortions; hierarchy of policies; home‐market bias; production; tariff; trade policy

Chapter.  10462 words.  Illustrated.

Subjects: International Economics

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