Tariff Escalation and Invasive Species Risk

consumer surplus, producer surplus and tariff revenue, increases as the tariff on the final good
falls and the two triangles of deadweight loss shrink. Next in the input market, the triangle of
deadweight loss associated with the domestic input supply D remains unchanged due to its linear
specification and the parallel shift from the reduced externality. Note also that the changes in
surplus from the derived demand DI and input tax revenues fromτ_I are captured in changes in

profit measured in the variation of the producer surplus in the supply DFG. Hence two less
obvious components of the welfare consequences of the lower tariff is the input producer surplus
in D inclusive of the externality and the deadweight loss associated with the derived demand of
DI. These two welfare components before reform are described as follows:

*

where P_D is supply of D when risks are associated with equilibrium import level

input market is:

These two welfare components in the input market after reforms are:

Proposition 1: Under assumptions of sections 3.1. and 3.2., a reduction in tariff escalation

10

<<   8   9   10   11   12   13   14   >>

More intriguing information