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Optimal tariff |
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Optimal tariffThe level of a tariff that maximizes a country's welfare. In a nondistorted small open economy, the optimal tariff is zero. In a large country it is positive, due to its effect on the terms of trade.Similar MatchesPareto-optimalPareto-optimalHaving the property that no Pareto-improving change is possible. Optimal tariff argumentOptimal tariff argumentAn argument in favor of levying a tariff in order to improve the terms of trade. The argument is valid only in a large country, and then only if other countries do not retaliate by raising tariffs themselves. Even then, this is a beggar thy neighbor policy, since it lowers welfare abroad. See Johnson (1954). Optimal currency areaOptimal currency areaThe optimal grouping of regions or countries within which exchange rates should be held fixed. First defined (as "optimum currency areas") by Mundell (1961). Optimal contractOptimal contractThe contract that balances the three types of agency costs (contracting, monitoring, and misbehavior) against one another to minimize the total cost. |
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