On Tariff Preferences And Delegation Decisions In Customs Unions: A Heckscher--Ohlin Approach

This paper studies preferences of customs union (CU) members over common external tariff (CET) levels and extends the literature on delegation decisions over trade policy in models with production. In a model with similar CU members, we prove that most--preferred CETs can be ranked with the help of compensated price elasticities of import demand functions. In the Heckscher--Ohlin trade model, we show these elasticities depend on inter--country differences in relative factor endowments and inter--sectoral differences in technology. This helps identify the optimal policy maker in a CU and demonstrates delegation decisions over trade policy can be integrated into mainstream trade theory. Copyright 2002 Royal Economic Society