Producer behavior with rules of origin

Laura Díaz; Jaume Sempere

doi:10.3934/jdg.2023006

Article Contents

2023, Volume 10, Issue 4: 330-336. Doi: 10.3934/jdg.2023006

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Producer behavior with rules of origin

Laura Díaz^1, , and
Jaume Sempere^1,2,

1.
Comisión Nacional de los Salarios Mínimos, México
2.
El Colegio de México, México

^*Corresponding author: Jaume Sempere
^*Corresponding author: Jaume Sempere

Received: July 2023

Early access: August 15, 2023

Published online: August 15, 2023

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Abstract

This paper presents a model of a free trade area that incorporates rules of origin and analyzes their implications for the structure of producers' supply correspondences. In our model, producers decide whether or not to comply with rules of origin to avoid paying tariffs to export to other free trade area members and, as prices change, producers can switch from production plans that satisfy rules of origin to production plans that do not. We show that rules of origin can produce discontinuities in the supply correspondence of firms that have to be taken into account when doing policy analysis.

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Mathematics Subject Classification: 91B38, 91B60.

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Figure 1. Profit function

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Figure 2. Supply function of the firm

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References

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