A Problem of Epidemic
Proportions?
The Unanticipated
Consequences of Infectious
Disease on International Trade
Author Information
Name:
Sheikh Shahnawaz
Affiliation:
Graduate School of International Policy Studies
Monterey Institute of International Studies
Monterey, CA 93940
Contact:
[email protected]
1. MOTIVATION
• Infectious disease outbreak impacts
international commercial activity
• International trade could become a vehicle for
the further spread of disease
• Consumers feel apprehensive toward imports
but…
• Completely shutting down trade lowers national
welfare
• Important to assess the effectiveness of trade
policy instruments in the face of disease
outbreak in trading partners
3
2. METHODOLOGY
•
Game-theoretic model of international trade
with two defining features:
1. Consumer anxiety in importing country, e.g., from
infected foodstuff from abroad
2. Uncertainty about potency of infection
•
•
Policymaker wants to maximize national
welfare and derives optimal tariffs and quotas
to achieve that objective
Determines national welfare under optimal
tariffs and quotas
4
3. SIMULATION RESULTS
• Quotas are better than tariffs because they
deliver higher national welfare
• Closing down trade is a superior trade policy
option when consumer apprehension toward
imports is low
• Both tariffs and quotas are better than no trade
at higher levels of anxiety
• The less uncertain we are about the potency of
infections, the better it is to use tariffs and
quotas to manage trade flows
5
National welfare under quotas (Vq) is higher
than under tariffs (Vt) regardless of the level
of uncertainty (Var(S))
Figure 1(a): Var(S)=0.125
Expected Utility
2
1.5
1
0.5
0
1
2
3
4
5
6
7
8
9
10
11
Apprehension
Vt
Vq
6
National welfare under quotas (Vq) is higher
than under tariffs (Vt) regardless of the level
of uncertainty (Var(S))
Figure 1(d): Var(S)=0.5
2
Expected Utility
1.5
1
0.5
0
-0.5
1
2
3
4
5
6
7
8
9
10
11
-1
-1.5
-2
Apprehension
Vt
Vq
7
National welfare under no trade (Vd) is
higher than under tariffs (Vt) at lower levels
of consumer apprehension (alpha)
Figure 2(a): alpha=0.5
Expected Utility
2.5
2
1.5
1
0.5
0
1
2
3
4
5
6
7
8
Var(S)
Vt
Vd
8
National welfare under no trade (Vd) is
higher than under tariffs (Vt) at lower levels
of consumer apprehension (alpha)
Figure 2(b): alpha=0.7
1.75
Expected Utility
1.7
1.65
1.6
1.55
1.5
1.45
1.4
1.35
1
2
3
4
5
6
7
8
Var(S)
Vt
Vd
9
National welfare under tariffs (Vt) could be
higher than under no trade (Vd) at higher
levels of consumer apprehension (alpha)
Expected Utility
Figure 2(c): alpha=0.9
1.6
1.58
1.56
1.54
1.52
1.5
1.48
1.46
1.44
1.42
1.4
1
2
3
4
5
6
7
8
Var(S)
Vt
Vd
10
National welfare under tariffs (Vt) could be
higher than under no trade (Vd) at higher
levels of consumer apprehension (alpha)
Figure 2(d): alpha=1
Expected Utility
1.6
1.55
1.5
1.45
1.4
1.35
1
2
3
4
5
6
7
8
Var(S)
Vt
Vd
11
National welfare under no trade (Vd) is
higher than under quota (Vq) at lower levels
of consumer apprehension (alpha)
Figure 3(a): alpha=0.5
Expected Utility
2.5
2
1.5
1
0.5
0
1
2
3
4
5
6
7
8
Var(S)
Vq
Vd
12
National welfare under no trade (Vd) is
higher than under quota (Vq) at lower levels
of consumer apprehension (alpha)
Figure 3(b): alpha=0.7
Expected Utility
1.75
1.7
1.65
1.6
1.55
1.5
1
2
3
4
5
6
7
8
Var(S)
Vq
Vd
13
National welfare under quota (Vq) is higher
than under no trade (Vd) at higher levels of
consumer apprehension (alpha)
Figure 3(c): alpha=0.9
1.6
Expected Utility
1.59
1.58
1.57
1.56
1.55
1.54
1.53
1
2
3
4
5
6
7
8
Var(S)
Vq
Vd
14
National welfare under quota (Vq) is higher
than under no trade (Vd) at higher levels of
consumer apprehension (alpha)
Figure 3(d): alpha=1
Expected Utility
1.62
1.6
1.58
1.56
1.54
1.52
1.5
1.48
1.46
1.44
1
2
3
4
5
6
7
8
Var(S)
Vq
Vd
15
4. POLICY RECOMMENDATIONS
• Shutting down trade is not necessarily the best
approach to dealing with disease outbreaks
abroad
• Trade should be shut down only when consumer
apprehension toward imports is low
• Quotas should be used at higher levels of
consumer apprehension toward imports
• Informing consumers about dangers from
infectious disease makes it less essential to
close down trade
16
4. POLICY RECOMMENDATIONS
• Coherence and coordination between
trade and health policies is essential
• Public health and international trade
professional need to collaborate more
extensively
17