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Title: |
Welfare and Protection in the Presence of
Endogenous Transfer Prices |
| Author: |
Madan, Vibhas |
| Author
Affiliation: |
Drexel U |
| Source: |
International Economic Journal, Autumn 1992, v. 6, no. 3, pp. 1-20 |
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Publication Date: |
Autumn 1992 |
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Abstract: |
This paper analyzes the welfare effects of
a host-country tariff in the presence of endogenous transfer prices. The
high transfer price and the low transfer price scenarios are analyzed in
the presence of "arm's length" restraints on a foreign multinational.
The welfare analysis decomposes the various elements which influence the
tariff rate. Under the high transfer price regime the host country's
welfare maximizing tariff is negatively related to the foreign price
elasticity of demand for the multinational's product, and under the low
transfer price regime it is related positively to the slope of the
multinational's cost curves in the foreign country. Further, under arm's
length restraints, it is never optimal for the host country to charge
the "critical" tariff rate at which the multinational is indifferent
between a low or a high transfer price. |
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