Aspects of the Theory of Tariffs (Collected Works of Harry Johnson)

6.    The Gain from Exploiting Monopoly or Monopsony Power in International Trade*

The ‘optimum tariff’ argument for protection, and the prospective gains for a country to be had by exploiting it, play a large part in the literature of trade policy for economic development. There is a widespread impression in this literature that the potential gains available to under-developed countries from this source are substantial. This Note investigates the problem, using some very simple models of the welfare derivable from trade, selected because they are capable of yielding quantitative results. Its purpose is to call attention to the generally neglected points that while the optimum tariff rate varies inversely with the elasticity of demand for exports ...