Tariff Escalation and Invasive Species Risk

improvement since IS risk decreases with a reduction of tariff escalation. Since a reduction in
tariff escalation has ambiguous impacts on changes in the distribution of imported inputs and
domestic input use, we then focus on sufficient conditions that guarantee that the externality
from IS is not exacerbated by the reform but rather reduced.

Welfare in input market, except the transferable DI consumer surplus, is the D producer
surplus subtracted by the deadweight loss associated with the DI demand:

IFGee]- ∫ D,(τ,τ,_ra)dτ-DIe

Proposition 3: Under assumptions of sections 3.1. and 3.3., reducing tariff escalation by
reducing the tariff on the imported final good and keeping the tariff on imported raw input

z    IFG^ee - IFG^e

Proofs: By lemma 2(ii), —— >-----------means that l < l and D > D .

z_IFG    DI^e-DI^ee

or zI^ee +z IFG^ee <zI^e +z IFG^e . This proves that the invasive
IIFG    IIFG

species reduce. It also proves, together with D^ee > D^e that the D producer surplus increases:

0.5D [τ₁ - (z₁l^ee + ^zJFolFG^ee)] > 0.5D^e [T - (^zJ^e + ^ziF_θlFG^e)].
II   IFG           II   IFG

Comparing deadweight loss associated with demand of DI, since τ^N <τ and θ< 1 we get that
lFG      lFG

DWL^e_D^e_ld < DWL^e_Dld. We also know that welfare in the final good market only, which is the sum

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