The previous chapter analyzed several generalizations of the simple two good, two-country, distortion-free Samuelson model introduced in chapter 3. Samuelson's theorem, that the recipient gains and the donor loses as a result of an international transfer, was shown to hold for all generalizations considered in chapter 4, in particular for public goods, non-traded goods and an arbitrary number of traded goods. Chapter 4 did not, however, analyze a variety of interesting phenomena which seem to be important in the real world, such as tariffs, rent-seeking, cost of administration, unemployment, etc. These phenomena fall under the heading “distortions,” that is deviations from the standard neoclassical assumptions which lead to Pareto-optimal outcomes. The concept of non-Pareto optimality with respect to distortions says that as a result of a distortion some countries' welfare (utility) can be increased without decreasing any other countries' welfare. For example, if for some reason a country levies a tariff on its import good, the resulting world economy equilibrium will in general not be Pareto-optimal; the abolishment of tariffs raises the welfare for some or all concerned. This chapter analyzes a number of such distortions. Naturally, we could investigate several different distortions at the same time in one model. The problem with such an approach is that it is in principle difficult to associate any particular analytical result to a specific distortion. It is therefore both simpler and possibly better to analyze one distortion at a time. We confine ourselves in this chapter to a number of important distortions that have attracted attention in the empirical literature; see Jepma (1991) for a survey.