Tariff Escalation and Invasive Species Risk

Since P=τ=αD^ee+zI^ee+zIFG^ee, and D^ee+I^ee =DI^ee, we solve for D^ee and I^ee:
DI        I    IFG

τ_I
θτ^N
τIFG

1

τ_I

θτ^n
τIFG

^tI
α-z_I

αK    τ   ^θ-1   z

^{α7γ τ}I + ^zIPG

α-zLθτⁿJα-z
I IFG                       I

Lemma 2: Under the assumptions of sections 3.1. and 3.3., a reduction in tariff escalation
through a decrease in the tariff on imported final good and holding the tariff on imported raw
input constant, has the following effects:

(i) total final good consumption increases, domestic final good consumed decreases, and
imported final good consumed increases;

(ii) total raw input use decreases, imported input use decreases (increases, and therefore
domestic input used increases (decreases)) if and only if the relative frequency of occurrence
between risks coming with input imported and risks coming with final good imported is higher
(lower) than the relative change in final good imported and the total input consumed.

Proof: These inequalities are obtained by using θ<1,γ>0,tIⁿFG < tIFG and by comparing directly

D^ee,I^ee andD^e,I^e.

(i) FG^ee >FG^e, DFG^ee <DFG^e, IFG^ee >IFG^e; and
(ii) DI^ee < DI^e, I ^e <I^e (and therefore D^ee >D^e ) if and only if

><

Part (ii) of lemma 2 states a relationship between prices, demand and cost parameters and
frequency of IS occurrence for the imported input to decrease (or increase).

We are interested in a win-win situation which is a sufficient condition for welfare

17

<<   <   15   16   17   18   19   20   21   >   >>