Dynamically Consistent Oil Import Tariffs.

The standard solution of the open-loop optimal import tariff is normally time inconsistent. This paper shows why and derives the dynamically consistent Markov perfect tariff. The two tariffs are compared; they differ except for a special class of import demands. The time paths of tariffs and the welfare cost of an inability to commit are calculated for a dominant importer. The welfare costs of the inability to commit are small if its market share is below one-half.