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The Effect Of Uncertainty On A Joint Product Model Of Smuggling, Scott Fausti
The Effect Of Uncertainty On A Joint Product Model Of Smuggling, Scott Fausti
Economics Staff Paper Series
Extending the seminal work of Bhagwati and Hansen (1973) on smuggling, Pitt (1981) developed a new approach to investigate the welfare effect of smuggling. This paper develops an extension of Pitt's original model which allows many of the interesting features of the Bhagwati and Hansen model to be revaluated within a joint product model of smuggling framework. The extension is made through the following modifications to Pitt's assumptions: 1) firms that export are free to engage in joint product smuggling or strictly legal trade; and 2) uncertainty is introduced into the model via active government enforcement. The modifications enable the …
The Empirical Issue Of Smuggling: A Discussion Of Methodology, Scott Fausti
The Empirical Issue Of Smuggling: A Discussion Of Methodology, Scott Fausti
Economics Staff Paper Series
The theoretical results attained from the literature on Illegal Transactions in International Trade suggest: 1) a positive link between the duty levied and the level of smuggling effort; 2) a nonnegative domestic relative price effect; and 3) an ambiguous social welfare effect. The theoretical results predict the generation of some type of distortion. The literature labels these distortions "disparities" and divides them into three categories: price, value, and quantity. These distortions represent the empirically measurable effects of smuggling on the domestic economy. This paper makes the proposition that the "price disparity" distortion is the variable that empirical studies should examine …