OPTIMAL TRADE POLICIES FOR A SMALL OPEN-ECONOMY

This paper investigates optimal trade policies for a small open econom y with unemployment. When factor prices are rigid, random foreign pric es result in random unemployment of resources. The ranking of second-b est policies is investigated. If the marginal propensity to consume th e importable is positive and non-increasing in income, the optimal com posite tariff dominates the optimal target price, which in turn domina tes the optimal quota.