In a seminal paper, <link rid="b3">Eaton and Grossman (1986)</link> conclude that an export tax is optimal if firms produce heterogeneous products and engage in Bertrand price competition. In particular, they made a comment that could be interpreted to mean that even in the case of a homogeneous product, the optimal...

This paper shows that optimal trade policies for vertically related markets depend crucially on production technology. By employing a production function with variable-coefficient technology, it shows that return to scale is crucial in determining the direction of government intervention....