Gar Lipow: > Ah - the version I heard was in regard to trade was that tariffs > are always a second best solution to market inefficiencies.
As far as I recall, tariffs are the third best, if not the fourth and beyond. Still the best of some sort I suppose: http://www.worldbank.org/research/pdffiles/hoff/2nd%20best%20encyc%20artile. pdf Here is an excerpt from the above: >>> BHAGWATI & RAMASWAMI illustrate the following example graphically. When the source of the distortion is a factor market imperfection, the ranking of policies is - first best: factor tax cum subsidy; second best: production tax cum subsidy; third best: tariff (or trade subsidy). The case of the optimality of free trade in a small open economy under an appropriate domestic policy is thus restored. <<< For us the mathematicians, the above is nothin' but just funny: I look forward to reading about the theory of twenty second best! Any of the economists here willing to take my challenge? I would even settle with the theory of twenty third best, so give it a try my friends. I will accept your theory no matter what. I will just order them as I like. Anyone willing to send me the forty seventh best theory? Sabri
