International Economics Commons^™

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 joint export smuggling model to investigate the welfare effect of illegal transactions. 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 reexamined 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 …