ABSTRACT
This chapter provides a selective review of the literature to outline the evolution of approaches towards modelling the endogenous determination of the tariff rate. In trying to explain why trade taxes exist, economists have come up with several possible explanations that trace the evolution of endogenous tariff theory. The analytics of the studies, however, have been geared to predict the response of the tariff rate in the face of increased import competition - that is, when there is a terms of trade gain for whatever reasons. Eaton and Grossman explicitly focused on the role of commercial policy in providing insurance when the insurance market is incomplete. They started with the assumption that there is some uncertainty regarding the international terms of trade. The group which benefits from the regulation pays the government with ‘votes' and ‘dollars' whereas the losers will reduce their support or increase opposition to the government.
