This paper derives Abreu's (1986) stick-and-carrot strategy optimal penal codes in a partial equilibrium model that has been widely used to examine trade liberalization. Unless the asymmetry between countries is significant, the optimal penal codes take simple form. It is also shown that the...

We consider trade policies intended to affect the production of a foreign monopolist that generates negative externalities. We derive the optimal tariff and optimal import quota and examine which policy measure should be used to maximize domestic welfare. We find that if the domestic government...