OPTIMAL TRADE POLICIES - AN APPLICATION TO THE UK FERTILIZER MARKET

This paper evaluates the trade policies introduced into the UK fertili zer market by the UK government and EC Commission in 1987. These polic ies are assessed in the context of theoretical developments in the ana lysis of trade policy where markets are imperfectly competitive, Speci fically, optimal tariff and tariff-equivalent quota policies are deriv ed. It is found that an optimal tariff policy would have resulted in t he highest level of economic welfare, while a quota would have reduced welfare, the latter result being due to the effect of a quota on firm s' behaviour. Relative to these policies, the trade restrictions actua lly imposed were too restrictive and hence failed to maximize economic welfare.