Questions about course content for Econ 541, Fall 2012 Nov 20: 1. In Jackson's book, he mentioned that one of the best ways to put a quota by nondiscriminatory is auction the quota among other countries. I don't understand it very well, and how to understand it on a MFN perspective? I search through the internet and I notice it rarely happens. I think in international trade, auction quotas among different countries may not good because countries are not free bidders, and they often solve it through negotiation, not completely market mechanism. A: If you want to limit total imports in a nondiscriminatory way, you can just issue import licences equal to the number of units that you want to let in, then sell them to the highest bidder regardless of what country they are coming from. The static effect is the same as a specific tariff equal to the price of the licence. The difference is that, over time as supply and demand conditions change, the price of the licence will change. I think you are right that this is rarely if ever done, even though it is more efficient than allocating different quotas to different countries, the values of which will then not all be the same and are therefore like discriminatory tariffs. A variation though, also efficient, is to allocate quotas to countries but then allow them to sell the licences themselves to exporters from other countries. Countries then get unequal rents, but the effect on trade is the same as a nondiscriminatory tariff. Q: 2 Another question is about subsidy on domestic products, it may not be a direct restrict on import, but still is a protecting action. Is it in the safeguard frame? A: Industries are often given subsidies to all production, and the motivation may sometimes be a response to imports. But I've never heard subsidies included among safeguard policies. Q: 3 I read the wage insurance article written by Brookings Institute. I have a thought: if we think human resources as a product, and workers are consumed by the companies which hire them, then outsourcing could be seen as an import of labors. So either the wage insurance or TAA are a kind of subsidy on domestic products and need to be concerned under safeguard( if the answer of the second question is yes). Is it correct? A: I see your point for wage insurance, in that it is a subsidy to the sale of labor. I've never heard it interpreted this way, or used as the basis for, say, a countervailing duty. Normal TAA is not such subsidy, however, since it provides benefits to workers while they are unemployed. Q: 4 Moreover, I think an underlying assumption of Ricardian's classic comparative advantage idea is: workers (labor) could flow within the boarder, but they can not flow internationally. I am not sure if it is right. But if it's right, I think outsourcing may violate the underlying assumption of classic comparative advantage theory, can we analyze it under Ricardian model? A: You are right that Ricardo's model assumes rather crucially that labor does not move internationally. But outsourcing is not movement of labor internationally, and in fact I regard outsourcing as just a particular manifestation of trade. As such, it is very much a reflection of comparative advantage. Oct 9: Just a clarification, are adjustment costs to individuals after they lose their jobs post autarky fully captured by the models we use in class? Or are they in addition to those market losses captured by distortion/lost transactions? When I took a version of this class as an undergraduate I remember them being an addition but not sufficiently large enough to offset gains to consumers. And that this was proven empirically. I just want to make sure I'm thinking about the cost side accurately. A: Yes, you're right that any adjustment costs are not part of the story, as these are static models just looking at alternative equilibria, not at paths from one to another. The adjustment costs are one-time costs, while the gains and losses that we quantify with the model are repeated in every time period. That is suggestive that the adjustment costs may be relatively small, but of course that depends a lot on the discount rate.