Tariff Escalation and Invasive Species Risk

and that

dD = ( τI /α )dln τI

we have

dI = (DI / (1-θ))( dln τIFG - dln τI )] - ( τI /α )dln τI

which leads to the condition

(DI / (1-θ))( dln τIFG - dln τI )] - ( τI /α )dln τI < 0,⁴

which after simplification leads to

^{d l}n ^tIFG > 1 + (¹ - ^θ)^τi
dln τ_I        DI

A subset of the joint tariff reforms decreasing deadweight loss does not exacerbate the
externality, which the relative tariff factor falls "strongly" enough. We formalize this result in the
following proposition.

Proposition 2. Under assumptions of sections 3.1. and 3.2., starting from an initial tariff
escalation, reducing tariff escalation with a joint tariff reduction, increases welfare and reduces
IS risk iff the joint reduction satisfy the following condition

^{d l}n ^tIFG > 1 + (1 - ^θ)^τi
dln τ_I        DI

The intuition of the condition is straightforward. The larger the elasticity of the derived
demand DI is with respect to the processed output price, the larger is the decrease in DI and raw
imports I in response to a decrease of the final-good tariff factor τIFG. The smaller the raw input
supply response is or the own-price elasticity of derived demand is in absolute value, the smaller

^{d l}n ^tIFG > 1 + sD^εDP₁>
^{d l}n ^tI         ηDIP_n-.

^{d l}n ^tIFG > 1 + ^sD^εDP_o  ^ηDIPD

^{d l}n ^tI            ПDIP_ra

FG

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